Pakistan green loans could unlock up to Rs2 trillion in productive lending if commercial banks raise their lending ratio by 5 to 10 percentage points.
The analysis said that banks hold more than $140 billion in deposits but lend only 40 paisas per rupee. It said higher green and productive lending would shift existing liquidity from state financing to the real economy without adding a direct cost to the exchequer.
The analysis said banks are not constrained by capital. It said government bonds remain more attractive because they pay well, require no capital cost and carry no default risk.
Project loans, by contrast, require underwriting, lock bank balance sheets for years and expose lenders to losses, the analysis said.
Climate and green financing could offer an entry point for productive credit because Pakistan remains highly exposed to climate risk.
Read: Pakistan to Issue Green Bonds on PSX to Fund Eco-Friendly Projects
The State Bank of Pakistan directed banks and development finance institutions in December 2025 to align green banking policies with the Pakistan Green Taxonomy.
The analysis said the taxonomy helps banks identify and disclose green loans, but does not, on its own, make those loans commercially attractive.
It identified lighter capital treatment for qualifying green assets, concessional development-finance funding and prudential reform as possible levers.
The analysis said immediate reforms could include recognising green collateral, allowing green bonds to count toward statutory liquidity reserves and using partial guarantees or blended finance to reduce first-loss risk.
