The All Pakistan Business Forum (APBF) has asked the banks to boost financial deepening and diversify beyond the government sector, stressing that no country can achieve sustainable economic growth with low levels of private credit. APBF President Syed Maaz Mahmood said that Pakistan’s banks allocate around 75 percent of their lending to established sectors, while only 5 percent goes to small and medium enterprises (SME). This imbalance highlights the need for banks to reassess their strategies, he said. With a more stable economy, he hoped that the government’s borrowing would be curtailed and the banking sector could look towards increasing credit to the private sector, particularly the SMEs and agriculture sector. APBF Chairman Ibrahim Qureshi observed that banks’ credit to the private sector as a percentage of GDP declined to 8.4 per cent by fiscal year 2024, which is almost half the level seen in 2004. Pakistan’s bank deposit- and private-sector credit-to-GDP ratios have also remained among the lowest compared to the regional countries. Pakistan has lowest deposit, private credit ratios, APBF chief said. Countering the common argument that government lending has crowded out the private sector, Maaz Mahmood noted that in some countries, despite equally high or even greater government borrowing from commercial banks, the private sector still holds a significant share of the financial sector’s portfolio. However, he also acknowledged the banking sector’s role in expanding bank account coverage, which has risen from 47pc of the adult population in 2018 to 64pc today. The gender gap has also narrowed from 47pc to 34pc. By 2028, the government aims to increase bank account coverage to 75pc of the adult population and reduce the gender gap to 25pc. Achieving these targets will require the financial sector to enhance its services’ depth, breadth, and quality. The APBF president suggested leveraging AI, digitisation and financial innovation to fulfil these goals. He appreciated the SBP governor and Finance Minister who have already urged banks to expand lending to the SME sector. Citing examples of smaller financial institutions shifting from collateral-based to cash-flow-based lending, they encouraged banks to explore opportunities among underserved players in the SME and agricultural sectors. Experts said that the macroeconomic crisis and high interest rates have led banks to generate windfall profits. As highlighted in the reports, 99.8pc of budgetary deficit support to the government comes through the banking sector, allowing banks to enjoy the fruits of high interest rates. With nearly 40pc of the population living in poverty, according to the World Bank, and the middle class feeling the strain, perhaps it’s unsurprising that profitable sectors are expected to contribute accordingly. Quoting the SBP governor he said that our banks need to rethink their current business model, reassess their priorities, and play a more active role in financial intermediation. He stated that SBP’s Strategic Vision 2028 mainly focuses on promoting inclusive and sustainable access to financial services; building an innovative and inclusive digital financial ecosystem; and enhancing efficiency, effectiveness, fairness and stability of the financial system. He added that the explicit addition of financial inclusion as one of SBP’s core functions in the amended SBP Act underscores its importance for the SBP. Highlighting the significant strides in financial inclusion over the past decade, he mentioned that bank account coverage has reached close to 64 percent of the adult population, from 47 percent in 2018. Referring to the latest National Financial Inclusion Strategy 2024-2028, he highlighted that the central bank has set a target to increase bank account coverage to 75 percent of the adult population and reduce the gender gap to 25 percent by 2028. To achieve these ambitious targets, we should enhance the depth, breadth, and quality of financial services, particularly for low-income individuals, the microfinance sector, SMEs, and agriculture.