PBA contextualizes ADR, IDR trends, urges reforms

December 30, 2025 (MLN):  The Pakistan Banks Association (PBA) has responded to recent media reports on the banking sector and emphasized that some coverage relying on outdated statistics provides an incomplete picture of current performance.

The PBA clarified that reports citing an Advance-to-Deposit Ratio (ADR) of 35% are based on June 2025 data.

Lending activity has since picked up, with the ADR rising to around 38% by November 2025, according to a press release issued.

This growth is fueled by Rs 1.5tr in new private sector credit during the current fiscal year, reflecting active deployment of liquidity by banks.

Addressing comparisons with regional peers such as India and Bangladesh, the PBA said these are misleading unless fiscal frameworks are also considered.

Unlike its neighbors, Pakistan relies heavily on commercial banks to finance the government’s operations, with banks shouldering nearly 99.8% of the deficit financing.

The Association noted that such structural burdens make it unrealistic to expect lending ratios comparable to those of neighboring economies.

The PBA also highlighted the challenge posed by Pakistan’s large informal economy. Currency in Circulation (CIC) stood at approximately Rs11tr in November 2025 around 34% of GDP and more than double the levels seen in India and Bangladesh.

With cash outside the banking system equivalent to nearly 31% of total deposits, banks face limitations in lending to informal sectors.

Despite these challenges, the banking sector has shown strong growth in priority areas. In the SME segment, the borrower base surged 57% year-on-year to 276,578 businesses, with financing rising 41% to Rs 691 billion in FY25.

Agricultural lending also rebounded after five years of decline, with borrowers increasing to nearly 2.9 million and disbursements hitting a record Rs 2.58tr.

The digital transformation of the sector has accelerated as well. App-based banking transactions more than doubled from 2.8bn in FY23 to 6.2bn in FY25, while Raast transactions grew eight-fold to nearly 1.3bn over the same period.

The PBA concluded that while banks remain a key engine of the economy, achieving lending ratios comparable to regional peers will require reduced government reliance on bank financing and a broader shift from cash to digital documentation.

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