KARACHI: Bank lending to the private sector has been negative for more than three months of the fiscal year 2026, as businesses prefer to pay off debts rather than borrow.
Between July 1 and October 3, 2025, the private sector repaid Rs18.573 billion to banks, according to data from the State Bank of Pakistan on Monday. This amount is significantly lower than the Rs296.9 billion repaid during the same period in the last fiscal year.
This could be seen as a sign that the private sector confidence has not fully recovered despite the pickup in economic growth.The SBP has cut rates by 1,100 basis points (bps) since June 2024. Last time, it reduced rates by 100bps in May 2025 and kept them steady in June, July and September.
Companies are nonetheless wary despite the drop in borrowing costs. They believe that the rate cuts were not enough to encourage investment. Additionally, inflationary concerns raised by the SBP’s monetary policy committee last month have heightened fears that the SBP may halt its easing cycle further, especially since it has indicated worries that inflation could accelerate this fiscal year.
Inflation accelerated sharply in September, with the consumer price index rising to 5.6 per cent. Price pressures have resurfaced after several months of relative calm. However, Central Bank Governor Jameel Ahmad expects inflation to remain within the government’s target range of 5-7 per cent over the medium term, despite some temporary upward pressure on prices from the recent floods.
Saad Hanif, head of research at Ismail Iqbal Securities, said that the latest data from the SBP indicates that the private sector continues to reduce its debt rather than seeking new credit. This trend suggests that business confidence has not fully recovered, even with the recent increase in GDP growth.
“Pakistan’s economy grew by 5.7 per cent in Q4FY25, lifting full-year growth to around 3.0 per cent, but much of this rebound appears to be consumption-led rather than investment-driven. High real interest rates, flood-related disruptions, and cautious sentiment have kept firms from expanding their balance sheets,” Hanif said.
“In essence, credit appetite remains on the sidelines, and businesses are choosing to stay light rather than lean into leverage. As monetary conditions ease and policy stability improves, we could see borrowing gradually revive, but for now, the data points to a recovery running ahead of credit growth, not the other way around,” he added.