Karachi, February 18, 2025: Bank loans to the private sector has surged by an impressive 255%, driven by a significant decline in interest rates.
According to the latest figures released by the State Bank of Pakistan (SBP), the private sector borrowed Rs 764 billion during the period from July 1, 2024, to February 7, 2025, compared to Rs 215 billion in the corresponding period of the previous fiscal year.
Financial analysts attribute this remarkable growth in private sector credit offtake to the SBP’s decision to gradually reduce the benchmark policy rate. The policy rate was slashed by 100 basis points on January 27, 2025, bringing it down to 12%. This move marked a significant decrease from the 22% rate that had prevailed earlier, providing much-needed breathing room for businesses to expand and invest.
The recent private sector borrowing has already exceeded the total loans disbursed throughout the entire 2023-24 fiscal year when banks extended Rs 513 billion in credit to private enterprises. This growth underscores the renewed confidence of the private sector in the country’s economic trajectory.
A closer look at the data reveals that conventional banks lent Rs 140 billion to the private sector during the current fiscal year, up from Rs 53 billion in the previous year. However, despite the availability of cheaper loans, the private sector showed a marked preference for Islamic banking.
Islamic banks recorded a dramatic increase in private sector lending, disbursing Rs 551 billion during the reporting period, compared to Rs 124 billion a year earlier. Additionally, Islamic banking branches of conventional banks extended Rs 72.5 billion in loans to the private sector, a rise from Rs 38 billion in the comparable period of the last fiscal year.
The substantial rise in private sector borrowing signals growing business confidence, supported by a favorable monetary environment. Analysts expect this trend to continue if interest rates remain low, potentially driving further economic growth and investment activity in the country.