Bank lending to Pakistan’s private sector has reached a record Rs1.5 trillion in FY26, marking a significant rise due to reduced government borrowing from the banking system, according to the Pakistan Banks Association (PBA).
This surge in financing has led to an 8.33% growth in Large-Scale Manufacturing (LSM), underlining the private sector’s crucial role in driving industrial output and job creation.
PBA Chairperson Zafar Masud highlighted the positive shift, stating, “When government borrowing moderates, banks promptly deploy capital into business, industry, and agriculture.” This shift in lending reflects the banking sector’s ability to pivot liquidity from sovereign debt into productive areas of the economy, contributing to the recent industrial recovery.
The State Bank of Pakistan (SBP) reported that private sector credit expanded by Rs187 billion between July and November FY26, driven by easing financial conditions and improved consumer sentiment.
However, on a year-over-year basis, private sector credit saw a slight decline of 0.3% due to the high base effect from extraordinary credit expansion in the previous fiscal year.
The latest SBP figures show bank lending to private businesses reached Rs135.3 billion between July 1, 2024, and December 12, 2025, down from Rs1.47 trillion in the same period last year. For FY25, total private sector credit flows amounted to Rs1.08 trillion.
Meanwhile, the government’s borrowing from the banking system, including the SBP and commercial banks, was negative during the same period, with Rs166 billion repaid. This marked a contrast to the previous year when the federal government repaid Rs1.662 trillion.
The PBA also emphasized the banking sector’s liquidity and capitalization, noting that deposits have reached Rs35.1 trillion. The association stated that the recent surge in lending is a direct result of reduced government reliance on domestic banking deposits and structural reforms that have allowed banks to better serve the private sector.
Muneer Kamal, CEO and General Secretary of the PBA, added that risk-sharing frameworks and market-led mechanisms are essential to making private sector lending more attractive and sustainable.
Addressing long-standing criticisms, the PBA pointed out that banks have shifted focus toward sectors that traditionally struggled to access credit. Record liquidity has been channeled into small and medium enterprises (SMEs) and agriculture, ensuring more equitable distribution of financing across various sectors.
The number of SME borrowers increased by 56.9%, rising from 176,246 in June 2024 to 276,578 in June 2025. SME financing jumped by 40.7% to Rs691 billion.
Additionally, agricultural credit saw a historic turning point, with the number of farmers accessing credit rising by 7.3% to nearly 2.9 million. Agricultural disbursements hit a record Rs2.57 trillion, a 16.3% increase YoY, further highlighting the banking sector’s renewed engagement with the rural economy.