Bank loans to the private sector declined sharply in the first four months of FY26. Businesses have taken a cautious approach toward borrowing and expansion.
According to the State Bank of Pakistan (SBP), net financing through bank loans fell to Rs. 66 billion between July and October 2025-26. This represents a 91% decline compared to Rs. 806 billion during the same period last year.
Private sector borrowing had grown significantly last year, despite high interest rates. The policy rate ranged between 20.5% and 15% in the same months of FY25. In FY26, the rate has remained steady at 11%.
Ibrahim Amin, Chairman of TriStar International Consultant, said the decline in bank loans is mainly due to companies repaying earlier loans taken at higher interest rates. Many businesses postponed new borrowing, anticipating further reductions in the policy rate.
The Monetary Policy Committee has maintained the rate at 11% for four consecutive reviews. Authorities noted that maintaining macroeconomic stability contributed to the slowdown in bank loans to the private sector.
SBP data shows that the private sector repaid Rs. 68 billion to conventional banks and Rs. 16 billion to Islamic banks during this period. Last year, conventional banks had extended Rs. 344 billion in loans, while Islamic banks provided Rs. 318 billion.
Experts predict that bank loans will recover as interest rates fall and large-scale manufacturing picks up. Small and medium enterprises (SMEs) could also see increased borrowing, especially through government-backed financing schemes.
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The current decline in bank loans highlights the cautious approach of businesses amid economic stability measures. Analysts believe lending will gradually increase as financing becomes more affordable and market confidence returns.
