Private-sector credit records a negative flow as businesses remain cautious about borrowing amid elevated financing costs

ISLAMABAD: Pakistan’s private sector reduced its outstanding borrowing from the banking system by more than Rs371.6 billion, as elevated interest rates and subdued economic conditions continued to weigh on demand for bank financing.

According to provisional monetary data released by the State Bank of Pakistan (SBP) for the week ended August 21, 2026, credit to the private sector stood at Rs11.412 trillion at the end of June 2026.

The data showed a negative flow of Rs371.662 billion in private-sector credit during the period under review, indicating a significant reduction in outstanding borrowing.

Private-sector credit declines across banking segments

The contraction was recorded across conventional and Islamic banking channels.

Credit extended through conventional banking branches declined by Rs198.609 billion, while financing through Islamic banks fell by Rs135.249 billion.

Islamic banking branches of conventional banks also recorded a decline of Rs37.805 billion.

The figures suggest that businesses have remained cautious about taking on fresh bank financing amid relatively high borrowing costs and challenging economic conditions.

Reduced demand for credit could also indicate that businesses are prioritising deleveraging and cash-flow management rather than expanding their borrowing commitments.

Overall non-government credit also falls

Credit to the broader non-government sector declined by Rs578.110 billion, reaching Rs14.426 trillion.

Within this category, credit to public-sector enterprises (PSEs) declined by Rs173.508 billion, while credit to non-bank financial institutions fell by Rs32.940 billion.

The decline points to weaker demand for bank financing across much of the non-government sector during the period.

Government remains dominant borrower

While private-sector borrowing contracted, the government continued to account for the bulk of borrowing from the banking system.

Net government-sector borrowing stood at Rs37.316 trillion at end-June 2026, while government borrowing from scheduled banks reached Rs35.735 trillion.

The figures underline the banking sector’s continued role in meeting the government’s fiscal financing requirements.

Government borrowing from scheduled banks is primarily raised through auctions of Market Treasury Bills (MTBs), while longer-term financing is obtained through Pakistan Investment Bonds (PIBs).

The contrast between declining private-sector credit and substantial government borrowing highlights the competing demands placed on the banking system.

Broad money contracts during period

The SBP data also showed a contraction in broad monetary aggregates.

Broad money (M2) stood at Rs46.460 trillion at end-June 2026 and recorded a negative flow of Rs2.728 trillion during the period under review.

Total deposits with banks declined by Rs2.574 trillion, while currency in circulation increased by Rs153.357 billion.

The banking system’s net domestic assets declined by Rs2.391 trillion, while net foreign assets fell by Rs337.195 billion.

High borrowing costs weigh on businesses

The latest figures highlight a notable shift in credit conditions, with private-sector borrowing falling sharply while government financing requirements remain substantial.

The decline in private-sector credit suggests that businesses continue to exercise caution over new borrowing commitments, particularly where financing costs remain elevated.

A sustained contraction in private-sector credit could have implications for business expansion, investment and working-capital activity, although the impact will depend on broader monetary and economic conditions.

The trend will be closely monitored as monetary conditions evolve and businesses assess the cost and availability of bank financing.