Banks Could Shift Core Business from Bonds to Loans Soon
Pakistan’s banks appeared to position their investment portfolios for higher interest rates during the first half of calendar year 2026, … Read More The post Banks Could Shift Core Business from Bonds to Loans Soon appeared first on ProPakistani .
During the first half of 2026, Pakistan's banks seem to have adjusted their investment strategies in anticipation of rising interest rates. The State Bank of Pakistan's Mid Year Performance Review revealed that banks leaned towards short-term and floating-rate government securities. Their investments grew, with market treasury bills increasing by Rs.
2,943 billion and holdings of Ijara Sukuk and Pakistan Investment Bonds rising by Rs. 1,255 billion and Rs. 834 billion, respectively. The share of market treasury bills in total government securities rose to 20.1 percent by the end of June 2026, while Pakistan Investment Bonds declined to 60.7 percent. A change in the offered-to-target ratio for semiannual floating rate Pakistan Investment Bonds to 12.9 and a decline to 3.7 for fixed-rate bonds indicated banks' interest in floating-rate securities to protect against potential interest rate increases.
Banks also increased their participation in market treasury bill auctions, with the offered-to-target ratio rising to 2.8. Despite a slight rise in after-tax profits to Rs. 370 billion and an increase in noninterest income to Rs. 370 billion, interest expenses increased, causing net interest income to decline. As the second half of 2026 approaches, banks' focus is shifting from protecting returns against rising yields to preparing for a possible rate reversal by emphasizing loan growth to sustain earnings in a lower interest rate environment.
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