The State Bank of Pakistan (SBP) has raised serious concerns about how the slow and complex judicial process is making it harder to rescue financially distressed industries. In its 2025 guidelines submitted to the federal government, the central bank pointed out that companies already struggling with debt are often pushed further into crisis because restructuring takes too long—and help comes too late.
According to the SBP, the moment an industrial unit falls behind on repayments, the first step—going through the courts—is so slow that it ends up worsening the situation. On top of that, banks are generally hesitant to offer new loans to these struggling businesses, especially if there are no strong assets to back the new financing.
“Lenders remain cautious,” the guidelines noted, “because any new loan given to a troubled borrower comes with an upfront cost and audit scrutiny.” Public sector banks, in particular, can’t even write off part of the principal debt unless they have specific permission—something that slows down balance sheet recovery and prolongs industrial inactivity.
The data paints a clear picture of long-term stress in the system. Between 2006 and 2015, non-performing loans (NPLs) soared from Rs177 billion to a peak of Rs618 billion in 2012, staying above Rs600 billion even in later years. Although there’s been a slight improvement in the NPL ratio recently, the overall volume of bad loans remains historically high.
Recognizing this, the SBP’s proposed framework aims to simplify and speed up debt restructuring—especially for sick industrial units. These new guidelines will apply to all banks and development finance institutions in Pakistan, with a special focus on public-sector financial institutions.
The idea is to provide clear rules and legal protection for debt write-offs and restructuring, especially for institutions hesitant to act due to audit fears. If implemented properly, the SBP hopes the policy will breathe new life into closed or underutilized industrial units and revive economic activity.
Eligibility will be limited to companies engaged in manufacturing, energy, logistics, agribusiness, or services that have been in default for at least a year and operating at less than 30% of their designed capacity. Fraudulent borrowers will be disqualified. Applicants will need to submit detailed revival plans with financial projections and demand analysis.
The SBP’s goal is to unlock dormant potential in Pakistan’s industrial sector by giving businesses a second chance—backed by responsible lending, structured recovery, and an end to bureaucratic roadblocks.
