Banks expected to remain reliant on government borrowing for profits

Pakistan's banking sector is expected to remain heavily dependent on government borrowing for profitability in FY27, as limited private-sector lending opportunities continue to constrain credit growth, according to industry participants.

 

Federal government borrowing from banks increased to PKR 5.9 trillion in FY26, up from PKR 5.4 trillion a year earlier, while private-sector credit stood at around PKR 1.4 trillion, highlighting the dominance of sovereign financing in banks' lending portfolios.

 

Bankers said the trend is likely to persist unless investment activity and demand for business financing improve. They noted that continued fiscal financing needs and limited private-sector expansion are expected to keep banks focused on government securities.

 

The banking sector's advance-to-deposit ratio declined to 35.2% in June 2026 from 38.1% a year earlier, indicating subdued private-sector lending. Meanwhile, the investment-to-deposit ratio remained above 100%, reflecting banks' continued preference for investing in government debt instruments.

 

Despite repeated calls from the State Bank of Pakistan (SBP) and the government to expand lending to businesses, particularly small and medium-sized enterprises (SMEs), analysts believe weak manufacturing activity, modest export growth and economic uncertainty will continue to limit private-sector borrowing during the current fiscal year.