SBP governor urges banks to prioritise SME lending

State Bank of Pakistan (SBP) Governor Jameel Ahmad has asked commercial banks to “seriously think about their current business model” and prioritise small and medium enterprises (SME) lending to play a proactive role for economic growth of the country.

Banks should shift their focus from financing to the government and large corporate entities towards SME lending and micro financing, he urged.

“Previously I have been discussing it in internal meetings with Pakistan Banks Association (PBA) and today I will state it publicly that banks have to seriously think about their current business model,” Ahmad said while speaking at the concluding session of a two-day ‘Pakistan Banking Summit 2025’ on Tuesday.

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Banks in Pakistan have lent almost entire deposits to the government to help it financing budget deficit, crowding out the private sector.

No country can progress without their banks extending the required financing to the private sector

According to the central bank latest data, commercial banks held total deposits at Rs30.3 trillion on December 5, 2024. Out of that, Rs29 trillion were lent to the cash-strapped government, extending almost 96% of the total deposits to the rulers.

Commercial banks had apparently extended short-term financing to big corporate entities in the last few months of 2024 to avoid additional tax in case of low lending to the private sector, increasing credit to the private sector to Rs15.1 trillion in December compared to Rs11.8 trillion at the end of August 2024, according to analysts and the central bank data.

Governor Ahmad further said at the conference that bank deposits and financing to the private sector in Pakistan both stood low while compared to other countries in the region.

“No country can progress without their banks extending the required financing to the private sector.”

He stressed upon banks to digitalise payment methods of their customers in both public and private sectors on the “war footing basis” and help them learn how to process payments in online banking.

The SBP governor asked banks to work on climate resilient financing to help achieve a long-term sustainable economic growth in Pakistan, believing the climate issues would fire back if left unattended.

He urged upon banks to invest in technology and artificial intelligence (Al), infrastructure, and human resource to design customer centric products and adopt the best banking practices in the country.

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The increased investment in technology would help banks to expedite financial inclusion and use Al for finding gaps in the future banking in Pakistan, Ahmad maintained.

Banks in Pakistan have opened accounts of around 64% adult population at present, jumping from 47% in 2018. Simultaneously, the gender gap in banking has been reduced to 34% at present from 47% in 2018, according to the SBP governor.

The central bank has set a new target of increasing bank accounts to 75% adult population and reduce the gender gap to 25% by 2028, he informed.