KARACHI: After three years of sluggish activity, the private sector has suddenly changed course, borrowing Rs806.3 billion from banks in the last fortnight of October.

Despite the policy rate falling from 22 per cent to 11pc, businesses had remained hesitant to seek credit, demanding deeper cuts to narrow the gap between inflation and borrowing costs. Just two months ago, the real interest rate was close to 8pc.

However, a new wave of inflation has disrupted the recent period of price stability, with the Consumer Price Index (CPI) rising to 6.2pc in October, prompting a shift in borrowing sentiment.

The State Bank of Pakistan (SBP), in its recent reports, criticised commercial banks for their excessive investment in risk-free government securities, which allowed them to earn easy profits. The central bank has repeatedly urged banks to step up lending to the private sector to revive growth, as sluggish economic activity has deepened poverty and joblessness.

After years of sluggish credit demand, firms return to banks

Until recently, most businesses had been reluctant to borrow even after the rate cuts. But in the last 15 days of October, private credit picked up strongly, moving from debt retirement to fresh borrowing. During July-Nov 1 FY26, bank lending to the private sector was significantly higher than the Rs66bn recorded during the same period last fiscal year.

Speaking at the 22nd Annual Excellence Awards Ceremony organised by the CFA Society Pakistan on Monday, SBP Governor Jameel Ahmad acknowledged a persistent gap in credit and investment needs. “This gap can be met through continued efforts to improve capital market infrastructure and governance, develop alternative investment products, expand digital access and simplify procedures,” he said.

The private sector’s inactivity over the past three years has been a major drag on growth. The economy grew by 2.6pc in FY25, later revised to 3pc, with total private sector borrowing at Rs1.081tr — more than double the Rs513bn recorded in FY24.

In the first four months of FY26, conventional banks lent Rs344bn, compared with a Rs68bn debt retirement in the same period last year. Islamic banks extended Rs318.5bn, against a Rs16.5bn net retirement previously, while Islamic windows of conventional banks lent Rs143.7bn, slightly below last year’s Rs151bn.

Published in Dawn, November 11th, 2025