Saturday, 27 November 2021 11:19 GMT

Pakistan's Islamic banks show its conventional peers how it's done

(MENAFN- Khaleej Times) Islamic banks are trailbrazing the financial sector in a big way, the latest financial results of banks show.

While still quite new in Pakistan, Islamic banking is moving ahead in all segments of their operations, the State Bank of Pakistan (SBP), reported recently.

The network of Islamic banking institutions (IBIs) has expanded. Now it consists of 21 IBIs, five full-fledged Islamic banks and 16 conventional banks having stand-alone Islamic banking branches. IBIs have expanded their branch network to 2,320 branches. The SBP says 55 per cent of these branches are based in five cities - Karachi, Lahore, Rawalpindi, Islamabad, and Faisalabad. The number of Islamic banking windows, operated by conventional banks, is now at 1,255.

Islamic banks have beaten conventional banks by mobilising deposits at a faster pace, as a growing number of people wish their cash and business to be handled in an Islamic mode. The SBP, in its review of Islamic banking operations for financial year 2016-17 and in the April-June quarter of the same period, says deposits in IBIs rose by Rs1,156 billion, or 10 per cent, to Rs11,720 billion.

Overall banking industry deposits rose 6.5 per cent over the same quarter, but the deposits of IBIs rose more than double to 13.7 per cent at the end of the April-June quarter compared to 13.2 per cent in 2015-16.

"This growth helped Islamic banks improve their asset base," the SBP says.

Islamic banks' assets in overall banking assets were 11.6 per cent at the end of June. Their asset base increased by Rs150 billion, or eight per cent, during the quarter to stand at Rs2,035 billion, it reports.

"The growth in many sectors of Islamic banking, registered by Shariah-compliant branches of conventional banks, was more aggressive than that posted by fully-fledged Islamic banks," the SBP says.

What about the growth of IBIs versus conventional banks in Pakistan? The SBP says the market share of IBIs in the overall banking industry was recorded at 11.6 per cent and deposits 13.7 per cent at end-June 2017.

Profit after tax of IBIs was Rs8.8 billion at the end of June 2017, up from Rs6.1 billion in the same quarter of 2015-16. Return on assets improved to 6.9 per cent and return on equity was 13.8 per cent. IBIs' capital base rose 5.6 per cent to Rs134 billion by the end of June.

Capital to total assets ratio was 6.6 per cent. The capital minus net non-performing assets to total assets ratio was 6.1 per cent while operating expenses to gross income saw a decline of 2.9 per cent, but it is still higher than that of the overall banking industry's average.

Financial year 2016-17 also came out with the fact that the share of fully-fledged Islamic banks and Islamic banking branches of conventional ones to the overall assets of the Shariah-compliant banking industry was 59 per cent and 41 per cent, respectively, at the end of June. Islamic banks improved their investments on the back of sukuk business, totalling Rs71 billion, which was used by the government of Pakistan.

The report also indicates that the share of small and medium enterprises in overall financing by IBIs rose to 3.2 per cent in the March-June quarter, up from 2.9 per cent in the January-March quarter of 2016-17. Farm sector funding in overall financing was 0.4 per cent at end of June. As one looks at the whole range of Islamic financing, it is, for sure, healthy and prospering all the way.

It is also confirmed by that fact that Dubai-based Bank Alfalah has been awarded as 'The Best Bank Operating in Pakistan for 2017'. The award was granted by the SBP for "demonstrating the most significant contribution to national development and the most effective management of its resources, including its employees, clients, franchisee community and financials".

Alfalah received the honour at the Second Pakistan Banking Council Awards. These were jointly organised by the Institute of bankers, A.F. Ferguson & Company and The Dawn Media Group.

UAE-based Meezan Bank was declared 'The Best Islamic Bank of 2017' for expanding its 'Islamic banking franchise and raising public awareness'. Other banks, which received awards for various achievements, include United Bank and Telenoor Microfinance Bank.

SBP Governor Tariq Bajwa, speaking at the awards ceremony, said the banking sector plays a vital role in economic development.

"The awards will encourage banks to improve their performance," he said.

The writer is based in Islamabad. Views expressed are his own and do not reflect the newspaper's policy.


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