Unlocking the Success of Islamic Banking in Pakistan: A 2023 Overview

The Islamic banking in Pakistan is gearing up for a stellar performance in 2023, with expectations of nearly 100 percent growth. As the annual results of leading Islamic banks loom

on the horizon, the industry showcases a remarkable expansion on multiple fronts, including assets, deposits, and investments.

1. Setting the Stage: A Profitability Surge

The profit before tax for Islamic banking is anticipated to range between Rs. 350 billion and Rs. 400 billion, a testament to the industry’s tremendous growth. This surge is

attributed to the increasing favorability of Sharia-based banking, catalyzed by a Federal Sharia Court verdict.

2. Riding the Growth Wave: Industry Estimates

Industry estimates indicate that the Islamic banking sector has experienced a remarkable growth pattern, with consumers from diverse segments leaning towards Sharia-compliant

banking. Both the government and financial institutions are increasingly opting for Islamic banking, especially in fundraising endeavors.

Read Also: Islamic Banking Industry in pakistan: 22% Asset Surge in Q3 with deposit Crossing Rs6 Trillion Mark

3. Statistical Triumph: State Bank of Pakistan’s Insights

According to the State Bank of Pakistan, the Islamic banking industry reported a profit-before-tax of Rs. 266.7 billion from January to September. This represents a staggering 114

percent growth compared to the same period in the previous year, marking a significant milestone for the industry.

4. Sector Composition: Islamic Banking Institutions (IBIs)

The Islamic banking industry comprises 22 institutions, including 6 full-fledged Islamic banks and 16 conventional banks with standalone Islamic Banking Branches. Meezan Bank

takes the lead among commercial and Islamic banks, boasting a before-tax profit of Rs. 114 billion in the last three quarters.

5. Key Players: Top Performers of Islamic Banking in Pakistan

Habib Bank Limited emerges as a standout performer in the Islamic banking business, maintaining the highest profitability at Rs. 18.3 billion in the first three quarters of 2023. It is

closely followed by United Bank Limited’s Islamic banking division, Ameen, with Rs. 12 billion, and Bank Alfalah with Rs. 10.9 billion in profit before tax.

6. Financing Milestone: Government Ijara Sukuk 2023

In 2023, Islamic banking marked a significant milestone by providing nearly Rs. 4 trillion in financing to Government Ijara Sukuk, further solidifying its role in the financial

landscape.

7. Soaring Heights: Industry Assets and Deposits

The assets of the Islamic banking industry skyrocketed to over Rs. 8 trillion, while deposits surpassed Rs. 6 trillion by the end of 2023. This robust growth reflects the industry’s

strong foothold and appeal among investors.

8. Financial Metrics: A Comparative Analysis

The return on assets (before tax) for the industry stands at an impressive 4.5 percent, outshining the overall banking industry’s 3 percent. Moreover, the return on equity (before

tax) is equally remarkable, standing at 72% compared to the industry average of 52%. The operating expense to gross income ratio for Islamic banking is notably lower at 34.8%,

compared to the industry’s 41.8%.

9. Managing Risk: Non-Performing Financing (NPF)

The Non-Performing Financing (NPF) of the Islamic banking industry is commendably low at 3.6%, compared to the broader banking industry’s 7.7%, as reported by the State Bank

of Pakistan. This signifies the industry’s robust risk management practices.

10. Conclusion: A Triumph for Islamic Banking

In conclusion, the Islamic banking industry in 2023 has not only met but exceeded expectations. The substantial growth in profitability, coupled with increased assets and deposits,

paints a promising picture for the future.

11.FAQ’s