Bad Loans Surge to Rs. 622 Billion as Pakistan’s Banks Face Recovery Crisis

Pakistan’s banks are being squeezed by a deepening loan recovery crisis where slow courts, weak enforcement, and growing bad loans are choking off credit to the private sector. New analysis shows the country’s non-performing loan ratio has climbed to 7.4 percent, far higher than in the US or UK. The 13 biggest banks now carry more than Rs. 622 billion in bad loans, with state-owned lenders under the most pressure. Recovery efforts remain stuck while stay orders drag on, collateral often can’t be traced, and police frequently decline to help with asset seizures. Even cases with clear court decisions can take years to enforce. Banks are steadily shifting their money toward government lending. As a result, credit for SMEs, farmers, consumers, and potential homebuyers continues to shrink. Mortgage lending, already limited, remains frozen as banks fear they won’t be able to reclaim property if a borrower defaults. Experts say Pakistan could learn from Sri Lanka’s fast non-judicial recovery model, which lets banks auction collateral without lengthy court battles. They argue such a system would quickly revive lending to sectors that drive jobs and growth. Unless Pakistan fixes its broken recovery system, the credit crunch will worsen, investment will stay weak, and the country’s growth prospects will continue to dim.