Bank lending to Pakistan’s private sector jumped by 12 percent year-on-year in FY25, reaching a total of Rs. 9.6 trillion, according to data released by the State Bank of Pakistan (SBP). This growth figure slightly exceeds the decade-long average of 11 percent, marking a renewed momentum in credit uptake by businesses and consumers alike.
While the increase reflects a growing appetite for financing amid improved economic indicators, the current private sector credit-to-GDP ratio still remains relatively modest. For FY25, the ratio stood at just 8.4 percent—significantly lower than the 15.2 percent recorded in FY18. The gap highlights untapped potential in Pakistan’s credit markets, particularly as the broader economy shows signs of recovery following years of macroeconomic turbulence.
A key driver of the surge in lending was the sharp drop in interest rates, which not only improved the cost of borrowing but also spurred demand for consumer and business loans. This trend was reinforced by a visible pickup in overall economic activity, creating a more favorable environment for both investment and expansion within the private sector.
One of the standout components of the growth story was the rebound in auto financing, which saw a robust 20 percent year-on-year increase in FY25. The auto sector, often considered a bellwether for consumer credit trends, benefited from both improved supply conditions and better financing terms as banks relaxed lending policies amid falling benchmark rates.
Analysts at Topline Securities note that the current trajectory of credit growth is likely to persist into FY26. With the economic recovery gathering pace and further rate adjustments anticipated, the firm expects double-digit growth in bank loans to continue. They also emphasize the potential upside for sectors such as housing, small and medium enterprises (SMEs), and renewable energy if policy support and liquidity conditions remain favorable.
Despite the positive momentum, structural challenges remain. Pakistan’s financial inclusion levels are still low, and much of the private sector, particularly SMEs and informal businesses, continue to face barriers in accessing formal credit. Analysts point to regulatory bottlenecks, collateral limitations, and risk-averse banking practices as key obstacles that need to be addressed to fully unlock private sector lending potential.
Furthermore, while interest rates have played a major role in reviving credit demand, sustainable growth will depend on broader macroeconomic stability, policy continuity, and continued investor confidence in the financial system. The central bank’s role in ensuring a balanced credit environment—while managing inflation and supporting monetary stability—will be crucial in the coming fiscal year.
Overall, the FY25 data offers a cautiously optimistic view of Pakistan’s credit market. The rebound in private sector borrowing is a promising signal of economic re-engagement, but the pace and depth of credit penetration will rely heavily on continued reform, financial innovation, and coordinated policy action across the public and private sectors.