KARACHI: The State Bank of Pakistan (SBP) governor has urged commercial banks to reassess their business models and prioritize lending to small and medium enterprises (SMEs) to play a more active role in the country's economic growth.

Speaking at the concluding session of the 'Pakistan Banking Summit 2025,' he emphasized the need for financial institutions to shift their focus from financing the government and large corporate entities toward SME lending and microfinancing. He highlighted that banks have been extensively investing in government securities to help finance the budget deficit, thereby crowding out the private sector.

According to the latest central bank data, commercial banks held total deposits of Rs30.3 trillion as of December 5, 2024. Out of this, Rs29 trillion had been lent to the government, accounting for nearly 96% of total deposits. This excessive reliance on government financing has significantly limited credit availability for businesses, particularly SMEs, which are crucial for economic development. To avoid additional tax penalties for low private-sector lending, banks increased credit to the private sector from Rs11.8 trillion in August 2024 to Rs15.1 trillion by December.

However, the governor pointed out that despite this recent increase, private-sector financing remains low compared to other economies in the region. He stressed that no country can achieve sustainable economic growth without adequate financing to private enterprises. He urged banks to take a proactive role in supporting businesses by providing easier access to credit, particularly for SMEs, which serve as the backbone of the economy. Additionally, he called on banks to accelerate the digitalization of payment systems for both public and private sector clients.

He emphasized the need for financial institutions to educate customers on modern banking methods, including online payment processing, to enhance efficiency and accessibility. The digital transformation of banking services, he noted, would improve customer experience and contribute to broader financial inclusion. The governor also underscored the importance of climate-resilient financing to support long-term economic stability. He warned that failing to address climate-related financial risks could have serious repercussions for the banking sector and the overall economy. He encouraged banks to invest in technology, artificial intelligence (AI), infrastructure, and human resources to develop customer-centric products and adopt global best practices. Investing in technology, he explained, would help banks identify future banking trends and gaps, ultimately leading to improved service delivery. He acknowledged the progress made in expanding financial services, with the percentage of adults holding bank accounts increasing from 47% in 2018 to 64% at present. The gender gap in banking has also narrowed, declining from 47% in 2018 to 34% now.

To further enhance financial inclusion, the central bank has set a target of increasing bank account penetration to 75% of the adult population and reducing the gender gap to 25% by 2028. He urged financial institutions to align their strategies with these goals to foster sustainable economic growth in the country.