Private sector borrowing soars to Rs1.9 trillion in 1HFY25

KARACHI: The private sector in Pakistan secured a staggering Rs1.9 trillion in bank loans during the first half of FY25, marking a remarkable 265 percent increase compared to the same period last fiscal year, reported Dawn.

Data released by the State Bank of Pakistan (SBP) revealed that banks have been willing to extend loans to the private sector despite ongoing challenges linked to sluggish economic growth and political instability.

In the first quarter of the current fiscal year, bank lending was significantly lower; however, a notable decrease in interest rates prompted the private sector to seek out more affordable borrowing options.

Since June 2024, the SBP has decreased its policy rate by 900 basis points—from an exceptionally high 22 percent to 13 percent—mitigating previous constraints on growth.

The Consumer Price Index-based inflation has also seen a substantial decline, dropping to nearly a seven-year low of 4.1 percent in December 2024. This development played a crucial role in leading monetary policy officials to gradually reduce rates. The decline in inflation has provided room for further rate cuts in future monetary policy reviews, making financing more accessible for the private sector, though it may impact banks’ income.

As part of its strategy, the government has opted to borrow through long-term treasury bills and Pakistan Investment Bonds, which are issued at a value lower than their maturity amount.

The SBP’s data indicated that private sector borrowing amounted to Rs1.907 trillion during July-December FY25, up from Rs521 billion during the same period last year, reflecting a remarkable 266 percent increase. The surge in lending is largely attributed to a significant rise in borrowing in December, as banks were apprehensive that the government would impose a 15 percent incremental tax if they failed to achieve a 50 percent advance-to-deposit ratio (ADR).

Additionally, banks provided a historic Rs1.354 trillion to Non-Bank Financial Institutions (NBFIs) during the same July-December period, compared to Rs485 billion in the previous year, primarily to ensure compliance with the ADR limit.

Conventional banks lent Rs1.112 trillion to the private sector during the first half of FY25 compared to Rs230 billion in the same period of last fiscal year.

Similarly, the Islamic banks’ lending rose to Rs733 billion compared to Rs236 billion in the same period last year.

However, the Islamic branches of the conventional banks remained low-key and advanced Rs61.5 billion against Rs55 billion in the same period last year.

The SBP reported that the banks’ total credit to the non-government sector during the first half of the current fiscal year was Rs3.212 trillion compared to Rs382 billion in the same period last fiscal year.