For the first time in 2026-27, the private sector has shifted from retiring debt to net borrowing from banks. Private sector net borrowing reached Rs87 billion during July 1 to October 23, according to State Bank data reported on Monday. In the same period last fiscal year, the private sector retired Rs29 billion in debt.
The turn is modest in size, but its direction is the story. A sector that was paying banks back more than it borrowed is now borrowing more than it repays. Dawn reported the State Bank figures and the detail behind them, including a split between conventional banks, Islamic banks and the Islamic branches of conventional banks.
Only the Islamic branches of conventional banks extended loans on a net basis in the period. Conventional banks recorded a meagre debt retirement of Rs320 million, against Rs117 billion retired in the same period last fiscal year. Islamic banks recorded a net debt retirement of Rs63 billion, against Rs25 billion last year. The headline Rs87 billion therefore comes from one segment doing the lending, while the rest of the system still took in more repayments than it lent out.
The change appears to be the outcome of a sustained government effort to push banks to put more liquidity into the private sector. Prime Minister Shehbaz Sharif has pressed the point again in recent days. Feature Pakistan has reported on Shehbaz warning slow banks over priority loans. In that meeting, he directed the State Bank and the Ministry of Finance not to extend concessions to banks lagging in lending to farmers, small and medium enterprises (SMEs) and applicants under the Apna Ghar housing scheme.
The prime minister repeated the message in the latest meeting, saying the Ministry of Finance should take action against banks delaying loan disbursements to farmers, SMEs and Apna Ghar applicants. The government sees private lending as the channel through which growth and jobs arrive. If banks hold back, the argument runs, the economy grows more slowly than it should.
Yet the banks have yet to provide enough liquidity to lift growth above its level of the past four years, according to the Dawn report. That gap between pressure and result is the central tension in the figures. Lending has turned, but only just, and only in one segment.
The report gives three reasons why the private sector is reluctant to borrow and invest: high borrowing costs, political uncertainty, including terrorism in two provinces, and a looming war in the region. Each reason bites in a different way.
High borrowing costs are the most direct. The State Bank last week increased the interest rate by 50 basis points to 12 per cent, further reducing the appeal of borrowing for firms weighing new plant, stock or hiring. Bankers and analysts believe the State Bank may have to increase the rate further in the coming months, since the four-month average inflation is still in double digits. A firm that borrows at 12 per cent needs a project that earns well above that rate to make sense.
Political uncertainty and security risks affect the second part of the calculation: whether a project will run without disruption. Terrorism in two provinces raises costs for firms operating there and for supply chains that pass through them. A looming regional war adds a further risk premium, even for firms far from any border. Together, they push firms to wait rather than commit.
The inflation backdrop cuts both ways. Feature Pakistan has reported on Pakistan’s October inflation easing to 9.6 per cent. That easing helps households, but a four-month average still in double digits keeps the State Bank cautious on rates. Until inflation falls further and stays down, borrowing costs are likely to stay high, and the lending turn may stay modest.
The split in the figures deserves attention, because it shows where the new lending sits. Islamic branches of conventional banks were the only net lenders. Conventional banks barely retired debt, at Rs320 million, a sharp change from Rs117 billion a year earlier. Islamic banks retired Rs63 billion, more than double the Rs25 billion of last year.
One reading is that demand for Islamic finance products is holding up better than demand for conventional loans. Another is simpler: the headline turn is narrow, and it would look different if one segment changed course. Either way, the figures do not yet show a broad-based lending recovery.
For SMEs, farmers and housing applicants, the practical question is whether the turn reaches them. The prime minister’s focus is on priority-sector lending, but the State Bank data covers the private sector as a whole, so it does not prove that priority borrowers received the new Rs87 billion.
Frequently asked questions
What is private sector net borrowing?
Net borrowing means the private sector borrowed more from banks than it repaid in a period. From July 1 to October 23, that figure was Rs87 billion, against net debt retirement of Rs29 billion in the same period last year.
Which banks did the net lending?
Only the Islamic branches of conventional banks extended loans on a net basis. Conventional banks retired a meagre Rs320 million, while Islamic banks retired Rs63 billion in net terms.
Why are firms reluctant to borrow?
Dawn reported three reasons: high borrowing costs, political uncertainty including terrorism in two provinces, and a looming war in the region. The State Bank raised its policy rate by 50 basis points last week to 12 per cent.
What has the prime minister said about bank lending?
Prime Minister Shehbaz Sharif has directed the State Bank and the Ministry of Finance not to extend concessions to banks that delay lending to farmers, SMEs and Apna Ghar housing applicants. He has repeated that message in recent meetings.
Does the Rs87 billion figure mean a lending recovery?
Not yet on its own. The turn is narrow, driven by one segment, and the total is modest. A broader recovery would need larger net lending across conventional and Islamic banks in the next reporting periods.
