KARACHI: The private sector credit by the banking sector expanded by Rs 589 billion so far since the beginning of the current financial year (FY26) and is expected to increase further in the coming months following recent regulatory measures and incentive schemes aimed at facilitating the banking industry and export-led sectors.
In order to support the industrial growth, recently, the federal government and State Bank of Pakistan (SBP) have announced a number of initiatives.
Under these measures, the federal government has reduced the export refinance rate by 300 basis points to 4.5 percent aiming to provide relief to export and allied sectors.
Meanwhile, maintaining the key policy unchanged at 10.5 percent, the SBP has reduced the Cash Reserve Requirement (CRR) for banks from 6 percent to 5 percent to enhance liquidity in the banking system aimed to increase the private sector credit.
According to SBP data, banks disbursed Rs 588.68 billion in private sector credit during July 1, 2025 to January 16, 2026, compared with Rs 1.367 trillion in the corresponding period from July 1, 2024 to January 17, 2025.
Private sector tend to avoid borrow due to higher lending costs in the domestic market.
Industry experts believed that although, the growth in the private sector in the initial months of this fiscal year (FY26) is lower than previous fiscal year (FY25), these measures will help to increase the private, particularly large scale manufacturing sector, lending in coming months.
Mir Bakhtiar Ali Khan, a banker, welcomed the SBP’s decision to cut the CRR, calling it a “timely move” that will significantly enhance commercial banks’ lending capacity and bolster private sector credit.
He said the step reflects the SBP and the federal government’s commitment to supporting steady economic growth.
He added that the central bank aims to encourage healthy expansion in key sectors such as Large-Scale Manufacturing, which is estimated to have grown by around six percent during the current fiscal year.
“Based on estimates, even a one-percent reduction in the CRR can release at least Rs300 billion to commercial banks. If half of this amount is channelled to the private sector, it would provide significant relief and help accelerate economic growth,” he said.
Bakhtiar also emphasised that the move could improve market liquidity, lower borrowing costs for businesses, and encourage investment in industrial and manufacturing sectors, creating a multiplier effect for the broader economy.
“This decision not only strengthens banks’ lending capacity but also reinforces investor confidence in the private sector. It is a proactive step that could help Pakistan achieves more sustainable and inclusive growth,” he concluded.
Babar Khan, Chairman of the Pakistan Hosiery Manufacturers and Exporters Association (PHMA), said that the incentive and relief packages for exporters are positive steps toward boosting exports and reviving industrial and manufacturing activity across the country; however, the cost of operations in Pakistan remains high compared to regional economies.
Pakistani products are not competitive when compared with those of regional and competing countries; therefore, the government should further review energy costs and tax rates to enhance exports on a sustainable basis, he added.
He suggested that the government should also work to reduce taxes and electricity costs for exporters in order to achieve realistic export targets. Ibrahim Amin, an analyst in the banking and financial sector, also lauded the recent developments in the banking industry, particularly the reduction in the export refinance rate, saying the government should encourage medium and small-sized exporters to avail of this export refinance scheme rather than allowing big exporters to cash in this opportunity.
He observed that major exporters from a few sectors repeatedly avail themselves of such schemes, while many high-potential sectors remain unaware of these growth opportunities or hesitate to benefit from the banking system.
A large number of young Pakistanis are engaged on various e-commerce platforms, and many start-ups are ready to export their products if they receive adequate financial support, he said, adding that these emerging entrepreneurs should be integrated into the formal banking system to facilitate their growth and expansion.
He further suggested that the government should reduce the policy rate from 10.5 per cent to encourage businesses, particularly small and medium-sized enterprises linked to exportable products to benefit from the banking sector.
