The Islamic banking industry (IBI) continues its momentum in its acceptability and penetration, reflecting tremendous growth in asset value and deposits, which surged to over Rs. 8 trillion and Rs. 6 trillion by the end of September 2023.
According to the Islamic Banking Bulletin released by the State Bank of Pakistan (SBP), the assets of the Islamic Banking Industry (IBI) grew to Rs. 8.417 trillion by the end of September, compared to Rs. 1.5 trillion by the end of September 2022.
The deposits of IBI crossed the six trillion mark to reach Rs. 6.160 trillion by the end of September 2023, expanding by over Rs. 1.1 trillion from September 2022. The market share of assets and deposits of IBI in the overall banking industry stood at 19.6 percent and 22.5 percent, respectively, by the end of September 2023, according to the SBP.
During the last year, from September 2022 to 2023, the number of branches increased by 475 to 4,666. The growth in the network also reflected the expansion in the business of the IBI and the increase in the customer base of the Islamic banks.
The branch network of IBI consisted of 22 Islamic Banking Institutions (IBIs), including 6 full-fledged Islamic banks (IBs) and 16 conventional banks having standalone Islamic Banking Branches (IBBs) by the end of September 2023. The investment in Islamic banking also surged to over Rs. 3 trillion, with an addition of Rs. 1.1 trillion during the same period under review with 105 percent year-on-year growth.
The increase in investment was reported as the government frequently issued various Sukuks to raise funds for meeting budgetary expanses. The IBI industry attracted the government’s attention to Sukuk as their profit rates are comparatively lower than the profit rates offered by conventional banks on T-Bills and PIBs; hence, the government prefers to raise funds from the Islamic banking industry to save on expenses.
Unfortunately, the financing of IBI witnessed a paltry 1.3 percent year-on-year growth, or Rs. 41 billion. It increased to Rs. 3.02 trillion in September 2023 from Rs. 2.98 trillion in September 2022. Customers are reluctant to get financing facilities from Islamic banks due to the high profit rates of Islamic banks and the economic slowdown.
The banking regulator delinked KIBOR for Islamic banks for different services to customers on the request of the Islamic banks.
