Private Sector Credit Slumps Despite SBP Easing Measures

Data released by the State Bank of Pakistan (SBP) indicates a sharp contraction in private sector credit off-take, with banks extending Rs588.68 billion in financing between July 1, 2025 and January 16, 2026, compared to Rs1.37 trillion during the corresponding period last year. This represents a year-on-year decline of approximately 57%, underscoring persistent hesitation among businesses to assume new borrowing despite recent policy interventions.

The subdued credit growth reflects ongoing risk aversion in the private sector, even as the federal government has moved to improve liquidity conditions and provide targeted relief to export-oriented industries. In a bid to stimulate industrial output and export activity, the government recently reduced the export refinance rate by 300 basis points to 4.5%, lowering financing costs for exporters and allied sectors.

In parallel, the SBP maintained the policy rate at 10.5% while announcing a reduction in the Cash Reserve Requirement (CRR) for banks from 6% to 5%. The adjustment is aimed at injecting additional liquidity into the financial system and incentivising banks to expand credit to the private sector.

Bankers and market analysts view these measures as potentially supportive of a gradual recovery in private sector lending, particularly for large-scale manufacturing, during the latter half of the fiscal year. They estimate that a one-percentage-point cut in the CRR could free up nearly Rs300 billion for deployment within the banking system.

Industry stakeholders have cautiously welcomed the policy easing but warned that deep-rooted structural constraints persist. The Pakistan Hosiery Manufacturers and Exporters Association termed the reduction in export financing costs a constructive step, while emphasising that elevated energy tariffs and taxation continue to erode international competitiveness.

The association has called on the government to further rationalise electricity pricing and tax structures to enable exporters to compete effectively with regional counterparts and achieve sustained export-led growth.