KARACHI: Despite a massive cut in the benchmark interest rates, the private sector continued retiring loans as bank advances plunged 52 per cent in the January-March quarter.

The State Bank of Pakistan (SBP) slashed its policy rate by a staggering 1,000bps to 12pc from an unprecedented level of 22pc since June 2024.

The SBP data on Thursday showed that the private sector kept returning bank money it borrowed in the second quarter of FY25.

The private sector returned Rs712 billion in the third quarter of FY25. At the end of the second quarter on Dec 31, 2024, the total private sector borrowing stood at R1.4 trillion.

Bankers said the hype in the credit offtake by the private sector was not real as banks were parking their liquidity outside the banks to avoid a 15pc incremental tax for not meeting the 50pc Advance-to-Deposit Ratio limit.

“Look at the banks’ lending to the private sector during the same period of last year; it was just Rs273bn; much lower compared to the remaining Rs668bn with the private sector till March 28,” said a banker.

The poor lending to the private sector means low economic activities as reflected by negative Large-Scale Manufacturing, low expected GDP growth of 2.5pc, sluggish services sector and a significant drop in cash crops.

The LSM grew by 11.2pc in 2020-21 and 11.7pc in 2021-22. In 2022-23, the LSM shrank by a record 10.3pc in recent years. In 2023-24, the big industry output posted a paltry 0.92pc rise.

Published in Dawn, April 11th, 2025