Bank Financing to Private Sector Comes to a Standstill as Businesses Stop Expansion in Pakistan

Lending by the banking sector to the private sector remained subdued as businesses adopted a cautious approach toward investment and expansion, recording a decline of over 90 percent in bank borrowing from July to October compared to the same period last fiscal year. According to data released by the State Bank of Pakistan (SBP), net financing availed by the private sector fell to Rs. 66 billion during July-October 2025-26, down sharply from Rs. 806 billion during the same period last year (a year-on-year decline of 91 percent). Notably, private sector financing had posted significant growth last year despite historically high interest rates. The policy rate ranged between 20.5 and 15 percent during July-October 2024, while it remained steady at 11 percent during the same period of the current fiscal year. Banking and financial expert Ibrahim Amin, Chairman of TriStar International Consultant, said the decline in borrowing is primarily due to companies actively repaying loans obtained at higher interest rates. He added that businesses had anticipated a reduction in the policy rate to single digits, prompting many firms to postpone new borrowing. The Monetary Policy Committee has maintained the policy rate at 11 percent for the last four consecutive reviews, citing the need to preserve macroeconomic stability, which contributed to lower bank lending in the current fiscal year. “With the much-awaited reduction in the policy rate and a revival in large-scale manufacturing, private sector borrowing is expected to pick up,” Amin said, adding that lending to small and medium enterprises (SMEs) could also increase in the long term, especially if banks offer financing at lower rates through government-backed schemes or standard interest terms. SBP data showed that during the review period, the private sector repaid Rs. 68 billion to conventional banks and Rs. 16 billion to Islamic banks. In contrast, conventional banks had extended Rs. 344 billion in loans, while Islamic banks provided Rs. 318 billion during the same period last year.