Pakistan’s banking sector has significantly reduced lending to businesses, with private sector credit now accounting for only 22 percent of total assets as of March 2026. This shift reflects a growing preference among banks to finance government borrowing, as they seek lower-risk investment opportunities and stable returns in an uncertain economic environment.
Total banking assets have climbed to nearly Rs60 trillion, while the sector’s assets-to-equity ratio has increased to 18 times, indicating higher leverage levels. Analysts note that this expansion is largely supported by heavy investments in government securities rather than diversified lending to private enterprises and industries.
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Banks are increasingly allocating funds to Pakistan Investment Bonds and treasury bills, which offer relatively secure returns and meet regulatory requirements more easily than private lending. As a result, businesses face reduced access to credit, limiting their ability to expand operations, invest in new projects, and support overall economic growth.
Compared with regional peers, Pakistan continues to lag behind, with private credit-to-GDP ratios significantly lower than those of India and Bangladesh. This gap highlights structural challenges in the financial system, where limited lending to the private sector restricts broader economic development and competitiveness.
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Meanwhile, funding patterns have shifted as wholesale borrowing now accounts for 27.1 percent of total banking assets, exceeding Rs16 trillion. Much of this liquidity is provided by the State Bank of Pakistan through open market operations, creating a cycle where banks channel funds into government debt rather than productive private investments.
Experts warn that this growing reliance on government securities could expose the sector to risks if liquidity conditions tighten or fiscal policies change. Additionally, limited credit availability is affecting consumer financing, including housing and auto loans, further slowing economic activity and reducing opportunities for long-term growth