Pakistan’s banking sector has seen a significant shift, with the bank lending ratio (advance-to-deposit ratio, or ADR) dropping to 38.1% in June 2025, down from 50% in December 2024, following the government’s decision to withdraw a mandatory 50% ADR requirement. This policy, introduced in the FY25 budget, had imposed an incremental tax of up to 15% on banks failing to meet the 50% threshold, prompting a surge in lending to manage surplus liquidity. Despite compliance, the government later removed the condition but still applied an additional tax, leading banks to reduce lending activities.
The decline in the bank lending ratio reflects a return to cautious lending practices, with banks prioritizing liquidity over aggressive loan disbursements. Recent data shows private sector borrowing accounts for just 21% of total bank advances, while government borrowing has exceeded Rs44 trillion, indicating heavy reliance on public-sector financing. Posts on X highlight concerns that the lower lending ratio could limit credit access for businesses and SMEs, potentially slowing economic growth.
The State Bank of Pakistan reports that the banking sector remains stable, with foreign exchange reserves at a 39-month high of $14.5 billion. However, the dominance of government lending raises concerns about crowding out private investment. As policymakers address these dynamics, the banking sector’s role in supporting economic reforms, including privatization and SME growth, will be vital for sustained progress.
Published in SouthAsianDesk, July 16th, 2025
Follow SouthAsianDesk on X, Instagram and Facebook for insights on business and current affairs from across South Asia.
