Demand for bank loans in Pakistan increased considerably during the fourth quarter of FY2026, with the latest Bank Lending Survey showing a broad recovery in credit appetite across major borrowing segments. The overall loan demand index rose to 79 in Q4FY26 from 72 in the previous quarter, moving back into the “Increase Considerably” zone, according to the latest survey conducted by the State Bank of Pakistan (SBP).
The Bank Lending Survey was conducted between July 1 and July 31, 2026, and covered 38 respondent banks, compared with 44 banks that participated in the preceding survey. Expectations for future loan demand also strengthened significantly, with the forward looking index increasing to 87 in Q4FY26 from 74 in Q3FY26. The increase indicates that banks expect credit demand to remain stronger in the near term.
Among the major factors supporting loan demand, inventories and working capital requirements recorded a notable increase. The corresponding index rose to 70 in Q4FY26 from 63 in the previous quarter, indicating stronger financing requirements associated with business operations and inventory management. Demand for fixed investment financing also improved, with the index increasing to 59 from 56.
Despite the overall improvement in loan demand, several factors continued to weigh on credit sentiment. The index related to monetary policy decisions declined to 50 from 57, while security conditions weakened to 41 from 50. General economic activity also moderated, with its index falling to 40 from 50 in the previous quarter. These movements indicate that while borrowing demand recovered, concerns linked to economic activity and security conditions continued to influence lending conditions.
The sector wise breakdown showed that most major segments recorded quarter on quarter improvements. Agriculture loan demand increased to 83 in Q4FY26 from 78 in Q3FY26, while corporate loan demand climbed substantially to 78 from 67. Consumer loan demand also strengthened, rising to 85 from 77 during the quarter.
Small and medium enterprise (SME) loan demand was the only major segment to record a quarter on quarter decline. The SME demand index fell to 70 in Q4FY26 from 77 in Q3FY26. Despite the quarterly recovery in overall credit demand, all major sectors recorded lower demand levels when compared with the same quarter of the previous fiscal year.
Agriculture loan demand declined to 83 from 88 in Q4FY25 on a year on year basis, while corporate loan demand dropped from 88 to 78. SME loan demand fell from 84 to 70, representing a more significant decline compared with the other sectors. Consumer loan demand recorded a relatively smaller decrease, easing to 85 from 87 in Q4FY25.
The number of loan applications also increased during Q4FY26. The current loan application index rose to 80 from 73 in Q3FY26, while expected loan applications increased to 88 from 75. The rise in both current and expected applications points to stronger near term demand for credit from borrowers.
Borrowing costs, however, moved higher during the quarter. The overall current borrowing cost index increased to 59 in Q4FY26 from 47 in the preceding quarter. At the same time, expectations for borrowing costs improved, with the expected borrowing cost index falling to 58 from 72. The decline in the expected index suggests banks anticipate some moderation in the pace of borrowing cost increases in the coming quarters.
The availability of funds within the banking sector also strengthened during the quarter. The current fund availability index increased to 74 in Q4FY26 from 68 in Q3FY26, while expected fund availability climbed to 81 from 73. The improvement was supported by developments in deposits, bank liquidity and broader financial conditions.
Deposit volumes recorded the strongest improvement among the factors affecting fund availability. The deposit volume index increased to 81 in Q4FY26 from 70 in Q3FY26. The liquidity position of banks also improved, with the relevant index rising to 69 from 67.
At the same time, monetary policy decisions had a lower influence on fund availability, with the corresponding index declining to 45 from 57. The macroeconomic situation stood at 39 compared with 38 in the previous quarter, while competition among banks declined to 49 from 55. Government borrowing also recorded a decline in its index, falling to 49 from 55 in Q3FY26.
Non performing loans also showed a modest improvement during the quarter. The NPL index declined slightly to 47 in Q4FY26 from 49 in the previous quarter, indicating a marginal easing in the factor compared with the preceding quarter.
Overall, the latest SBP Bank Lending Survey indicates a recovery in Pakistan’s credit market during Q4FY26, supported by stronger demand from agriculture, corporate and consumer borrowers and an increase in loan applications. At the same time, higher current borrowing costs and weaker readings for security conditions and general economic activity remain factors influencing the lending environment.
The improvement in fund availability, stronger deposit growth and higher expectations for future loan demand provide additional indications of increased activity in the banking sector. The survey also shows that while credit demand has recovered on a quarter on quarter basis, lending conditions and sector specific demand remain uneven, particularly for SMEs and when compared with levels recorded a year earlier.
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