Financing from commercial banks to the private sector has skyrocketed by over 250% in the current financial year, driven primarily by a gradual decline in interest rates and banks’ strategies to balance their advance-to-deposit ratios.

Data released by the State Bank of Pakistan (SBP) reveals that credit to the private sector reached Rs. 563 billion from July to March 7 of this financial year, a significant increase from Rs. 155 billion during the same period last year. This marks an impressive growth of 263%.

Islamic banks are at the forefront of this financing surge, providing Rs. 416 billion in credit, which is 288% or Rs. 309 billion higher than the previous year. The Islamic banking divisions of conventional banks contributed an additional Rs. 104 billion, reflecting a growth of 236% or Rs. 73.1 billion. In contrast, conventional banks offered the least financing, lending Rs. 42 billion during the same period, although this still represents a growth of 150% or Rs. 25.2 billion compared to last year.

The banking regulator’s decision to reduce the policy rate from 20.5% to 12% has played a crucial role in influencing interest rates and boosting demand for credit from the private sector. Furthermore, banks have increased their financing to avoid penalties from the regulator for maintaining low advance-to-deposit ratios (ADRs).

While a significant portion of the financing has been directed toward the corporate sector and large entities, funding for other sectors, including small and medium enterprises (SMEs), agriculture, and consumer segments, remains relatively low. Analysts suggest that the stability of the economy and favorable macroeconomic indicators, particularly low policy rates, could lead to further increases in credit uptake by the private sector.