Demand for bank loans in Pakistan increased significantly during the fourth quarter of FY2026, with businesses and consumers showing stronger appetite for borrowing, according to the latest Bank Lending Survey (BLS) released by the State Bank of Pakistan (SBP).
The overall loan demand index rose to 79 in Q4-FY26, up from 72 in the previous quarter, moving back into the “Increase Considerably” range.
The SBP conducted the survey from July 1 to July 31, 2026, covering 38 banks compared with 44 banks in the previous survey.
Banks expect borrowing demand to increase further in the coming period, with the future loan demand index climbing to 87 from 74 in Q3-FY26.
Inventories and working capital requirements remained major drivers of loan demand. Their index increased to 70 from 63, while demand for fixed investment rose to 59 from 56.
Most major sectors recorded stronger demand during the quarter. Agriculture loan demand increased to 83 from 78, corporate loan demand rose to 78 from 67, and consumer loan demand climbed to 85 from 77.
However, demand from small and medium-sized enterprises (SMEs) declined to 70 from 77.
Despite the quarterly improvement, year-on-year demand remained lower across all major sectors. Agriculture demand fell from 88 to 83, corporate demand declined from 88 to 78, SME demand dropped from 84 to 70, while consumer demand eased from 87 to 85.
Loan applications also increased during Q4-FY26. The current loan application index rose to 80 from 73, while banks expect applications to increase further, with the expected index reaching 88 from 75.
Fund availability also improved during the quarter. The current fund availability index increased to 74 from 68, while the expected index rose to 81 from 73.
The improvement was supported by stronger deposit growth, with the deposit growth index jumping to 81 from 70. Banks also reported a slight improvement in their liquidity position, with the index rising to 69 from 67.
Despite stronger loan demand and improved fund availability, borrowing costs increased during the quarter. The current borrowing cost index rose to 59 from 47.
However, banks expect borrowing costs to moderate in the coming quarters, with the expected index declining to 58 from 72.
The influence of monetary policy decisions on loan demand also weakened, with the relevant index falling to 50 from 57. Security conditions deteriorated as the index declined to 41 from 50, while the impact of general economic activity fell to 40 from 50.
Competition among banks also weakened, with the index declining to 49 from 55. Government borrowing similarly fell to 49 from 55.
Meanwhile, non-performing loans showed a slight improvement, with the NPL index declining to 47 in Q4-FY26 from 49 in the previous quarter.
ThisThe latest survey indicates that Pakistan’s banking sector is experiencing a notable recovery in credit demand, with banks expecting borrowing activity and loan applications to strengthen further in the coming quarters.
