Pakistan’s Bank Lending Drops, ADR Hits Decade Low

Pakistan’s banking sector experienced a significant contraction in private sector lending during the first half of 2025, with advances plummeting by over 15%, according to the State Bank of Pakistan (SBP)’s mid-year review. This steep decline drove the Advances-to-Deposit Ratio (ADR) to a decade-low of 35.3%, sparking alarm over diminishing credit access for businesses.

From January to June 2025, advances shrank by 16.4%, dragging the ADR to its lowest point since June 2014. While deposits surged by 17.7%, asset growth leaned heavily on investments in government securities, indicating a pivot toward low-risk assets and a crowding out of private credit.

This credit squeeze stems from subdued loan demand and a cautious stance by banks, which are increasingly favoring government securities over lending to critical industries. The faltering ADR has ignited concerns about sluggish investment, industrial activity, and job creation.

The lending downturn also fueled a rise in the gross non-performing loans (NPL) ratio, which climbed to 7.4% by June 2025 from 6.3% at December 2024, despite a reduction in the stock of bad loans. While provisioning levels improved, the NPL uptick exposes vulnerabilities in credit growth, particularly in sectors like textiles, energy, and services.

On the earnings front, banks maintained steady profitability, aided by reduced interest expenses following recent policy rate cuts. However, fiscal pressures have heightened reliance on banking profits to meet government revenue demands, with banks remitting 54.5% of their pre-tax profits in taxation—a record high in recent years.