Pakistani Islamic banking sector posts 30% growth — central bank

Residents wearing facemasks wait for their turn to withdraw money outside a bank in Islamabad on March 30, 2020. (AFP/File)

• Overall industry assets increased to Rs4.3 trillion, deposits reached Rs3.4 trillion by end of December 2020
• Bankers say growth driven by increasing access to shariah-compliant financial instruments and growing faith-based demand

KARACHI: The Islamic banking industry of Pakistan has posted 30% and 27.8% growth in overall assets and deposits respectively during 2020, the highest such increase since 2012, central bank data shows, driven by increasing access to shariah-compliant financial instruments and growing faith-based demand.
Twenty-two Islamic banking institutions currently operate in Pakistan: five Islamic banks and 17 conventional banks with standalone Islamic banking branches.
The overall assets of the industry increased to Rs4.3 trillion while deposits reached Rs3.4 trillion by the end of December 2020, accounting for 17% of all assets and 18.3% of all deposits of the country’s entire banking industry, according to the State Bank of Pakistan (SBP).
“This is the highest increase in assets in a year since 2012 and in deposits since 2015,” the SBP said on Wednesday in its Islamic Banking Bulletin report for the quarter that ended on December 31, 2020.
“Over the last five years, both assets and deposits of the Islamic banking industry have more than doubled,” the central bank said. “This growth in assets and deposits of the Islamic banking industry is encouraging, particularly due the fact that the industry was also faced with the COVID-19 pandemic challenges during 2020.”
Financing for the Islamic banking industry also grew by 16% during 2020, and the non-performing finances (NPFs) to financing (gross) ratio declined from 4.3 %, as of the end of December 2019, to 3.2%, as of the end of December 2020.
Bankers say the growth in Islamic banking, where under shariah the payment and receipt of interest is strictly prohibited, is driven main due to increasing access.
Sana Tawfik, banking sector analyst at Arif Habib Limited, said the central bank had been promoting the sector’s development through the introduction of legal, regulatory and shariah-compliant frameworks for instruments such as Naya Pakistan Certificates (NPCs) under the Roshan Digital Account (RDA) initiative, which are available to overseas Pakistanis and those who had declared assets abroad.
“Steps taken by SBP to promote Islamic banking, inflows through RDA in NPCs, Islamic sukuks and the increasing frequency of sukuk auctions are the other couple of reasons driving it,” Tawfik said.
Ahmed Ali Siddiqui, senior executive vice president of Meezan Bank — Pakistan’s first full-fledged Islamic bank — told Arab News there was “stronger public demand” for shariah based or interest free banking.
“It is continuously fueling growth,” he said. “The development of Islamic capital market and availability of financial instruments like Sukuk expedited the growth.”
He added that the COVID-19 pandemic had proven the stability of Islamic banking.
“Surprisingly Islamic banking has shown strongest growth during COVID-19 crisis,” Siddiqui said. “This shows the stability factors of the Islamic economic system based on real economic conditions.”