SBP Forecasts Higher Credit Demand and Steady Banking Momentum in H2 CY26
The State Bank of Pakistan’s mid‑year review projects a seasonal rise in loan demand, stronger balance‑sheet growth and improved asset quality, signalling a positive outlook for the banking sector.
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Desk Analysis
How This Affects the Exchange
Sector Effect
Positive · Buy bias
Banks sector sees higher loan demand, stronger balance‑sheet growth and better asset quality – Buy bias on major banks.
Sectors & Direction
Desk read
Desk call: Buy bias · Positively affected
- BanksPositively affected
Companies
Mentions in This Briefing
Sectors: Banks — Positive · Buy bias. PSX tickers: HBL, UBL, MEBL, NBP, KEL. Banks sector sees higher loan demand, stronger balance‑sheet growth and better asset quality – Buy bias on major banks.
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Open on Business Recorder## State Bank of Pakistan releases mid‑year banking sector review
The State Bank of Pakistan (SBP) published its Mid‑Year Performance Review covering January‑June 2026. The review evaluates the sector’s soundness, credit trends, and systemic risks.
## Expected credit expansion in the second half of the year
SBP expects a seasonal uptick in credit demand and an increase in the aggregate exposure limit for large private‑sector borrowers without ratings, raising the ceiling from Rs 3 billion to Rs 10 billion. This is likely to boost banks’ advances in H2 CY26.
## Government financing needs remain high
The government’s borrowing requirement from banks for FY27 is projected at Rs 4,012 billion, up from Rs 2,231 billion in FY26, indicating continued reliance on the banking system for budgetary financing.
## Balance‑sheet growth and asset‑quality improvements
The sector’s balance sheet expanded 9.1 % driven mainly by higher holdings of government securities. Advances grew across both public and private segments, while deposits rose by Rs 3,673 billion. Non‑performing loan (NPL) ratio fell to 5.5 % in June 2026 from 6.1 % in December 2025, and the provisioning coverage ratio improved to 110.2 %.
## Earnings and profitability trends
Despite stronger loan growth, earnings rose modestly. Return on Assets slipped to 1.1 % and Return on Equity to 19.0 % in June 2026, down from 1.3 % and 21.3 % respectively a year earlier. Capital adequacy remained robust at 19.6 %.
## Risk outlook
SBP notes that geopolitical tensions in the Middle East pose a downside risk to the macro‑economic outlook and could affect equity‑market volatility. However, stress‑test results show the banking system, especially large systemically important banks, can withstand severe macro‑economic shocks for the next two years.
## Outlook for lenders
With easing financial conditions, resilient economic activity and an anticipated improvement in borrowers’ repayment capacity, banks are expected to maintain earnings despite low interest rates, supported by higher lending volumes to both private and public sectors.