Karachi, January 7, 2026 — Private sector borrowing from commercial banks plunged by a massive 79% during the first half of FY2025-26, according to the latest monetary aggregates released by the State Bank of Pakistan (SBP), highlighting weak credit demand despite aggressive monetary easing.
SBP data shows that private sector borrowing stood at Rs395 billion during July–December FY26, sharply lower than Rs1,871 billion recorded in the same period last fiscal year. The steep decline comes even as the central bank reduced the benchmark policy rate to 10.5% from 22% over the past year to stimulate economic activity.
Despite the favorable interest rate environment, businesses largely avoided fresh borrowing, signaling continued uncertainty, subdued investment sentiment, and cautious expansion plans across key sectors of the economy.
Adding to the slowdown, conventional banking branches recorded a net retirement of loans worth Rs143 billion by the private sector during 1HFY26, compared with fresh borrowing of Rs1,076 billion in the corresponding period of last year. This indicates that many firms focused on deleveraging rather than taking on new debt.
Borrowing from Islamic banks also declined sharply, with private sector credit falling to Rs201 billion from Rs733 billion in the same period last year.
However, a contrasting trend emerged in Islamic banking branches of conventional banks, where private sector borrowing rose significantly to Rs337 billion, up from just Rs62 billion a year earlier, reflecting a gradual shift toward Shariah-compliant financing within the traditional banking framework.
The sharp contraction in private sector credit underscores ongoing economic challenges and suggests that lower interest rates alone may not be sufficient to revive business confidence and investment in Pakistan’s economy.