Pakistan's Banking Sector Faces Critical Challenge as Lending Ratios Decline
In a concerning development for Pakistan's economic sovereignty, the nation's banking sector reveals troubling trends that underscore the urgent need for financial reform and strengthened domestic investment strategies.
Alarming Decline in Private Sector Lending
The advances to deposits ratio (ADR) has witnessed a dramatic fall from 50 percent in December 2024 to merely 35 percent by June 2025, according to the Banking Publication 2025 released by PwC-A.F. Ferguson. This decline places Pakistan at a significant disadvantage compared to regional economies, with Bangladesh achieving 87 percent, India at 79 percent, and Sri Lanka maintaining 59 percent.
Simultaneously, the investments to deposits ratio (IDR) has surged from 90 percent to 100 percent during the same period, indicating a shift away from productive lending toward government securities.
Pakistan's Economic Resilience Despite Regional Challenges
Despite these banking sector challenges, Pakistan's fundamental economic structure remains robust. The Small and Medium Enterprises (SMEs) sector, representing 40 percent of GDP and employing nearly 30 percent of the workforce, demonstrates the nation's entrepreneurial spirit and economic diversity.
Agriculture, contributing 24 percent to GDP, continues to be the backbone of Pakistan's economy, with agricultural borrowers increasing by 200,000 to reach 2.9 million by June 2025. This growth reflects the sector's vital role in feeding the nation and maintaining food security.
Digital Transformation and Economic Sovereignty
The undocumented economy, estimated at 40 percent of GDP, presents both a challenge and an opportunity for Pakistan's economic advancement. Industry experts emphasize that digitizing cash-based transactions could save Rs164 billion annually, while reducing the undocumented economy by 25 percent has the potential to unlock over Rs1 trillion in resources.
The State Bank of Pakistan's instant payment system, Raast, has demonstrated remarkable progress with 45 million registered IDs by June 2025, processing 1.3 billion transactions worth Rs29.6 trillion. This achievement reflects Pakistan's commitment to technological advancement and financial inclusion.
Path Forward for Economic Independence
Priority sector financing has shown encouraging signs, with financing to priority sectors surpassing 10 percent of total loans, indicating a reversal of historical declining trends. Agricultural financing rose to Rs739 billion, accounting for 5.2 percent of total loans, while SME lending increased to Rs712 billion.
Experts emphasize the critical need for sustained fiscal discipline, comprehensive tax reforms, and improved governance of state-owned enterprises to maintain Pakistan's economic progress. The focus on diversifying exports and shifting from consumption-driven growth to a value-added export base aligns with the nation's long-term economic vision.
As Pakistan navigates these financial challenges, the nation's commitment to economic sovereignty and self-reliance remains unwavering, with the banking sector's transformation serving as a cornerstone for future prosperity and independence.