Pakistan’s credit landscape continues to show expansionary momentum, with the State Bank of Pakistan’s latest Bank Lending Survey (BLS) for Q2-FY26 indicating a sustained rise in loan demand across most sectors. The current loan demand index increased to 85 in the second quarter of FY26, up from 84 in Q1-FY26, reflecting continued borrowing activity among businesses and consumers. Meanwhile, expected loan demand climbed further to 89, signaling strong forward-looking appetite for credit.
According to the survey findings, the upward trajectory in borrowing demand remains closely linked to monetary policy decisions, improved security conditions, and stronger perceptions of general economic activity. Monetary policy continues to play a central role, registering an index score of 82 as the dominant driver behind credit expansion.
Sectoral data shows broad-based growth with the exception of consumer lending, which experienced a slight moderation. Agricultural loan demand rose from 74 in Q1-FY26 to 79 in Q2-FY26, highlighting increasing rural financing needs and seasonal capital requirements. The corporate sector recorded steady expansion, with demand rising from 80 to 84 quarter-on-quarter, reflecting ongoing investment activity and operational growth among larger enterprises.
The SME segment demonstrated the most significant acceleration. Demand jumped from 73 to 82, indicating rising entrepreneurial activity and heightened working capital requirements. This surge underscores the growing role of small and medium enterprises in driving credit flows within the banking system. Although consumer loans edged down marginally from 87 to 85, they remained firmly within the “Increase Considerably” range, suggesting that household borrowing remains resilient despite the slight moderation.
Year-on-year comparisons further reinforce the positive trend. Agricultural loan demand increased from 74 to 79, corporate lending from 78 to 84, SME financing from 77 to 82, and consumer loans from 82 to 85. These figures reflect consistent credit expansion across key segments of the economy.
Loan application volumes also strengthened during the quarter. The index for the current number of loan applications rose sharply to 86, up from 76 in Q1-FY26. Expectations for future applications improved to 90, compared to 86 in the previous quarter, pointing to sustained pipeline growth for banks in upcoming periods.
Borrowing costs remained supportive of credit expansion. The index for overall current borrowing costs stood at 27, placing it within the “Decrease” zone, signaling relatively favorable financing conditions for both businesses and households. Liquidity indicators also improved. Expected availability of funds reached 80, up from 74 in Q1-FY26, entering the “Increase Considerably” category and reflecting stronger liquidity across the banking sector. Current availability of funds stood at 74, slightly below the 76 recorded in the same quarter last year, but still indicative of healthy funding conditions to support loan disbursements.
Beyond monetary policy, several additional factors contributed to rising loan demand. Inventory and working capital requirements registered an index of 77, security conditions scored 60, general economic activity 66, seasonal factors 69, and fixed investment needs 66. Together, these indicators point to improving business sentiment and operational expansion across sectors.
The Q2-FY26 survey results suggest that Pakistan’s banking sector is operating in an environment of strengthening liquidity, lower borrowing costs, and broad-based credit demand, reinforcing expectations of continued financial intermediation growth in the months ahead.
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