Analysis of Islamic banking in Pakistan report released by the State Bank of Pakistan (SBP) identified that the Islamic Banking Industry (IBI) has been playing a significant role in the implementation of various initiatives taken in the wake of Covid-19 pandemic and several other key measures to promote financing for low cost housing and SMEs and digitization.
During the Covid-19 pandemic, State Bank of Pakistan (SBP) introduced Temporary Economic Refinancing Facility (TERF), a concessionary refinance facility aimed at promoting investment both new and expansion and/or Balancing, Modernization and Replacement (BMR). In the disbursement of financing under TERF, the IBI also contributed significantly with a sizable share of 38 percent in total amount disbursed. Furthermore, IBI is actively contributing under the flagship initiative of Mera Pakistan Mera Ghar (MPMG), a financing facility to promote affordable housing. The existing share of IBI is 49 percent in total disbursements and 58 percent in total approved amount of financing under MPMG.
| Islamic Industry Progress And Market Share In Pakistan (Amount in Rs Billion) | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Particulars | Period | Yearly Growth (YoY) in % | Share in Overall Banking Industry (in %) | ||||||
| Dec-20 | Sep-21 | Dec-21 | Dec-20 | Sep-21 | Dec-21 | Dec-20 | Sep-21 | Dec-21 | |
| Assets | 4,269 | 4,884 | 5,577 | 30.0 | 28.2 | 30.6 | 17.0 | 17.0 | 18.6 |
| Deposits | 3,389 | 3,822 | 4,211 | 27.8 | 26.0 | 24.2 | 18.3 | 18.6 | 19.4 |
| No. of Islamic Banking Institutions | 22 | 22 | 22 | – | – | – | – | – | – |
| No. of Branches | 3,456 | 3,651 | 3,956 | 7.0 | 10.5 | 14.5 | – | – | – |
| No. of Islamic Banking Windows | 1,638 | 1,579 | 1,442 | 19.3 | 13.9 | (12.9) | – | – | – |
Similarly, in case of Roshan Digital Account, IBIs have been able to attract sizable investment in Islamic Naya Pakistan Certificates (INPCs) with a share of 46 percent to total inflows under Naya Pakistan Certificates (NPCs). Sources recorded that SBP has also been voted as the best central bank in promoting Islamic finance for the 4th time. IFSB (Islamic Financial services board) is an international standard-setting body of regulatory and supervisory agencies that enhances the soundness and stability of the Islamic financial services industry, covering banking, capital market and insurance. SBP issued its 3rd Strategic Plan for Islamic banking in 2021. The targets include attaining a 30 percent share in both assets and deposits of overall banking by 2025. To enhance the liquidity management framework of the Islamic banking industry and recognise the significance of the Islamic banking sector in enhancing the effectiveness of monetary policy implementation, SBP has introduced Shariah Compliant Standing Ceiling Facility and Open Market Operations (injections) for Islamic Banking Institutions.
Assets
Industry experts recorded that assets of IBI were registered at Rs 5,577 billion by end December 2021 as against to Rs 4,884 billion at the end of the last quarter, showing a quarterly growth of 14.2 percent (Rs 693 billion). This notable surge in assets of IBI was chiefly backed through investments (net), which was up by Rs 481 billion (35.1 percent) during the period under review. Similarly, financing (net) of IBI explained a quarterly growth of Rs 331 billion (14.6 percent). Due to growing asset base, statistics showed that market share of Islamic banking assets in the overall banking industry grew to 18.6 percent by end December 2021 as against to 17.0 percent in the last quarter. Furthermore, the share of financing (net) and investments (net) in total assets (net) of IBI recorded at 46.6 percent and 33.2 percent, respectively by end December 2021.
Breakup of assets of IBs and IBBs
Analysis of assets by division among IBs and IBBs reflects that the assets of IBs enlarged by 10.6 percent (Rs 290 billion) during the period under review and reached at Rs 3,028 billion by end December 2021. Correspondingly, assets of IBBs revealed a growth of 18.7 percent (Rs 403 billion) and touched Rs 2,549 billion by end December 2021. In terms of share, statistics also showed that IBs and IBBs accounted for 54.3 percent and 45.7 percent share, respectively in overall assets of IBI by end December 2021 (Figure-2).
Investments
Experts also analyzed that the Investments (net) of IBI recorded a significant growth of 35.1 percent (Rs 481 billion) during the period under review and were recorded at Rs 1,852 billion by end December 2021. This rise in investments (net) was chiefly because of funds invested by IBIs in multiple Government of Pakistan (GoP) domestic Ijarah Sukuk (GIS). It is also recorded that the government of Pakistan issued seven GIS amounting Rs 632 billion during the period under review. Bifurcation of investments (net) portfolio of IBs and IBBs divulges that investments (net) of IBs grew by 29.1 percent (Rs 211 billion) during the quarter under review and were registered at Rs 940 billion by end December 2021. Similarly, investments (net) of IBBs unveiled a growth of 41.9 percent (Rs 270 billion) to reach Rs 912 billion.
Liabilities
On the other hand, deposits of IBI depicted a quarterly growth of 10.2 percent (Rs 389 billion) during the period under review and were registered at Rs 4,211 billion by end December 2021. Market share of Islamic banking deposits in the overall banking industry grew to 19.4 percent by end December 2021 as against to 18.6 percent in the last quarter. The category wise breakup of deposits shows that all categories of deposits recorded rise during the period under review. Current deposits increased by 16.9 percent (Rs 237 billion), saving deposits grew by 5.3 percent (Rs 77 billion) and fixed deposits observed a growth of 3.9 percent (Rs 25 billion). Similarly, deposits of financial institutions up by 17.3 percent (Rs 49 billion) during the period under review. Furthermore, the division of deposits between IBs and IBBs reveals that deposits of IBs augmented by 8.4 percent (Rs 182 billion) during the period under review and were also registered at Rs 2,359 billion by end December 2021. Likewise, deposits of IBBs grew by 12.6 percent (Rs 207 billion) to reach Rs 1,852 billion. The share of IBs and IBBs in overall deposits of IBI was recorded at 56 percent and 44 percent, respectively, by end December 2021.