Forum urges banks to increase private lending
The All Pakistan Business Forum (APBF) has urged banks to enhance financial deepening and shift focus beyond government lending, emphasizing that sustainable economic growth is unattainable with low levels of private sector credit.
APBF President Syed Maaz Mahmood
pointed out that banks allocate nearly 75% of their lending to established
sectors, while only 5% goes to small and medium enterprises (SMEs). He stressed
the need for a strategic shift, hoping that as economic stability improves,
government borrowing would decrease, allowing banks to expand credit access to
SMEs and the agriculture sector.
Read More Bank
lending to the private sector shows upward trend
APBF Chairman Ibrahim Qureshi
highlighted a troubling trend: credit to the private sector as a percentage of
GDP fell to 8.4% by FY2024, almost half of what it was in 2004. Additionally,
Pakistan’s bank deposit- and private-sector credit-to-GDP ratios remain among the
lowest in the region.
Addressing
the Private Sector Credit Gap
Maaz Mahmood countered the argument
that excessive government borrowing is solely responsible for crowding out the
private sector. He noted that in some economies with equally high or greater government
borrowing, private sector lending still constitutes a significant portion of
financial institutions' portfolios.
Despite these concerns, he
acknowledged progress in financial inclusion. Bank account coverage has risen
from 47% of the adult population in 2018 to 64% today, while the gender gap has
narrowed from 47% to 34%. The government aims to further expand coverage to 75%
by 2028, with a gender gap reduction target of 25%. Achieving these milestones
will require greater financial innovation and service expansion.
Encouraging
AI and Digital Financial Solutions
To bridge the financing gap, the
APBF president recommended leveraging AI, digitization, and financial
innovation to enhance credit accessibility. He commended the State Bank of
Pakistan (SBP) governor and the finance minister for urging banks to increase
SME lending and shift from collateral-based to cash-flow-based financing.
Read More Private
sector faces continued negative bank lending amid economic challenges
Experts pointed out that Pakistan’s
banking sector has reaped windfall profits due to high interest rates, largely
driven by the fact that 99.8% of the budget deficit is financed through banks.
With nearly 40% of the population living in poverty, the middle class
struggling, and financial disparity widening, the expectation is that the
banking sector must contribute more effectively to economic growth.
Rethinking
the Banking Model
The SBP governor has urged banks to
reassess their business models and prioritize financial intermediation. The SBP
Strategic Vision 2028 focuses on:
· Expanding inclusive and sustainable
access to financial services
· Building an innovative digital financial
ecosystem
· Enhancing efficiency, fairness, and
stability within the financial system
As part of the National Financial
Inclusion Strategy (2024-2028), the SBP has set ambitious targets for expanding
financial access, particularly for low-income individuals, microfinance
borrowers, SMEs, and the agricultural sector.
The APBF reiterated that without a
significant shift toward private-sector credit expansion, Pakistan’s long-term
economic growth and financial stability will remain at risk.
Source: Daily Times