Islamabad, Jan 25: (SBP), credit to the private sector has surged to Rs 1.4 trillion in the ongoing fiscal year 2025 (FY25), marking an 815% increase compared to Rs 153 billion during the same period last year. This growth, recorded between July 1, 2024, and January 17, 2025, is attributed to banks’ efforts to meet the Advances-to-Deposit Ratio (ADR) requirements and avoid additional tax burdens.
Regulatory Pressures and Lending Boom
The government’s imposition of a tax on banks failing to maintain a 50% ADR by December 31, 2024, had a significant impact. The incremental tax, which could go up to 15%, prompted banks to adopt aggressive lending strategies to avoid the penalty. While this tax was later replaced with an increased income tax rate of 44% under the Income Tax Amendment Ordinance 2024, the regulatory pressures continued to drive the growth in credit lending.
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Conventional and Islamic Banks Lead the Charge
- Conventional banks led the lending surge, with a total of Rs 722.642 billion in credit disbursed during the first seven months of FY25, compared to a repayment of Rs 3.34 billion in the same period last year.
- Islamic banks also saw a significant rise in lending, recording a 403% increase (Rs 501 billion), bringing their total lending to Rs 625.55 billion in FY25, compared to Rs 124.255 billion in FY24.
- Islamic banking branches of conventional banks contributed an additional Rs 50.213 billion in FY25, compared to Rs 31.886 billion in the previous year.
Impact of Tax Incentives and Demand for Credit
The data highlights that both conventional and Islamic banks have played key roles in boosting credit flows as a response to tax incentives and monetary easing. This substantial growth underscores the strong demand for credit among businesses, reflecting a dynamic banking sector that is adapting to regulatory measures to maintain profitability and sustain economic activity.
This growth in credit is seen as a positive indicator of business confidence, despite challenging economic conditions, with banks keen to support businesses in need of financing.
