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KARACHI: Credit to the private sector has surged significantly, reaching Rs 1.4 trillion mark during the current fiscal year (FY25), driven largely by monetary easing and banks’ aggressive efforts to meet the Advances-to-Deposit Ratio (ADR).

The State Bank of Pakistan’s (SBP) statistics revealed that the increase in private sector credit during the period from July 1, 2024, to January 17, 2025, posted a remarkable 815 percent growth, surging from Rs 153 billion in the same period last fiscal year (FY24) to Rs 1.398 trillion.

This increase represents an impressive Rs 1.245 trillion surge in lending, highlighting a sharp uptick in credit flow to businesses across the country and aggressive lending strategies by banks in response to the evolving tax regulations.

Jul 1 to Nov 15: Record Rs880bn credit disbursed to private sector

Analysts said several contributing factors behind this substantial rise in private sector credit, including the ongoing monetary easing policies and higher demand for credit from businesses looking to expand or shore up operations.

Additionally, banks have been motivated to ramp up lending in order to meet the regulatory ADR requirement and avoid additional tax burden. One of the key drivers behind the surge has been the government’s decision to impose an incremental tax of up to 15 percent on banks failing to maintain an ADR of50 percent by December 31, 2024.

In a bid to avoid this additional tax, banks have aggressively increased their loan disbursements to meet the required ratio, resulting in the notable credit to private sector growth during this fiscal year.

On December 28, 2024, however, the federal government took a last-minute decision to amend tax regulations, abolishing the proposed 15 percent additional tax on bank profits under the Income Tax Amendment Ordinance 2024. Instead, the government introduced an increase in the standard income tax rate for banks from 39 percent to 44percent.

According to the SBP, conventional banks were the largest contributors to the surge in credit, disbursing a total of Rs 722.642 billion during the first seven months of FY25, compared to Rs 3.34 billion repayments in the same period of FY24.

Meanwhile, Islamic banks also saw a significant rise in credit to the private sector. Lending by Islamic banks rose by 403 percent or Rs 501 billion, reaching Rs625.55 billion in FY25, up from Rs 124.255 billion during the same period last year.

In addition, Islamic banking branches of conventional banks contributed Rs 50.213 billion in credit to private sector during the July 1, 2024 to Jan17, 2025, up from Rs31.886 billion in FY24.

Copyright Business Recorder, 2025

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