Pakistan’s banking sector is playing a central role in supporting economic revival, with private sector lending reaching Rs 1.5 trillion in the fiscal year FY26, reflecting a renewed flow of credit into productive segments of the economy.
The Pakistan Banks Association (PBA) highlighted the sector’s strong contribution to the country’s economic recovery, pointing to a record surge in private sector credit during the ongoing financial year. According to data shared by the association, commercial banks have extended approximately Rs 1.5 trillion in financing to businesses in FY26, a development that has helped drive growth in industrial output and employment.
The increased availability of credit has translated into tangible gains in the real economy. Large-Scale Manufacturing (LSM) recorded growth of 8.33 percent, underlining the impact of improved liquidity on industrial activity. PBA said the data validates the banking sector’s role as a key enabler of economic momentum by supporting businesses with timely and adequate financing.
Small and Medium Enterprises have emerged as a major beneficiary of the renewed credit expansion. The number of SME borrowers increased sharply by 56.9 percent, rising from 176,246 in June 2024 to 276,578 in June 2025. At the same time, outstanding SME financing grew by 40.7 percent to Rs 691 billion, reflecting banks’ increased focus on bringing smaller businesses and entrepreneurs into the formal financial system.
PBA noted that this expansion in SME lending reflects a strategic shift by banks toward segments that have historically faced limited access to credit. The association emphasized that improved liquidity conditions and a more conducive policy environment have enabled banks to deploy capital beyond traditional large corporate lending.
The agriculture sector also witnessed a significant turnaround. FY25 marked a historic shift as the banking sector reversed a six-year decline in the agricultural borrower base for the first time since 2019. The number of farmers accessing bank credit rose by 7.3 percent to nearly 2.9 million, supported by record disbursements of Rs 2.57 trillion, representing a year-on-year increase of 16.3 percent. Outstanding agricultural financing stood at Rs 995 billion, highlighting renewed engagement by banks with the rural economy.
According to PBA, these trends demonstrate a clear market-driven response. As government borrowing from domestic banking deposits moderates, banks are naturally reallocating liquidity toward private sector borrowers. The redirection of funds into SMEs and agriculture underscores the sector’s readiness to support economic growth when structural distortions are reduced.
Zafar Masud, Chairman of the Pakistan Banks Association, said the latest data reflects a fundamental economic reality. He noted that when government borrowing eases, banks quickly and effectively channel capital into business, industry, and agriculture. He added that the banking sector has successfully shifted liquidity away from sovereign debt toward the productive private economy, becoming a primary driver of recent industrial recovery.
The banking sector remains well-positioned to sustain this momentum. Deposits currently stand at Rs 35.1 trillion, while capital adequacy and liquidity indicators remain strong. PBA emphasized that the current spike in private sector lending is not a one-off development but an indication of the sector’s underlying capacity to support growth when policy conditions are supportive.
Muneer Kamal, CEO and General Secretary of PBA, said banks have always been willing to lend, but require a conducive policy framework, effective risk-sharing mechanisms, and market-based incentives to make private sector financing sustainable. He added that improvements in these areas have allowed banks to expand credit more confidently.
Addressing concerns that banks tend to favor only large corporates, PBA stressed that recent credit flows demonstrate a deliberate move toward sectors that have traditionally been underserved. The strong growth in SME and agricultural financing shows that improved liquidity is being distributed more broadly across the economy.
Looking ahead, PBA reaffirmed its commitment to working with regulators to further expand access to credit. The association highlighted future focus areas including SMEs, housing, agricultural value chains, logistics, and renewable energy. It said that greater use of digital lending tools, data-driven credit assessment, and incentives for formalization will be key to sustaining inclusive and long-term economic growth.
The association concluded that the banking sector’s recent performance underscores its critical role in Pakistan’s economic recovery and its capacity to support growth when policy and market conditions are aligned.
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