As the leading Islamic banks prepare to disclose their full-year results, the Islamic banking industry (IBI) is anticipated to achieve remarkable growth of nearly 100 percent in profitability for the year 2023.
This exceptional expansion spans various facets of the industry, including assets, deposits, and investments, with estimated profit before tax ranging between Rs. 350 billion and Rs. 400 billion, according to industry projections.
The significant surge in the IBI’s growth trajectory is attributed to the increasing preference of consumers from diverse segments for Sharia-based banking, following a Federal Sharia Court ruling that sought to Islamize the banking system. Furthermore, both the government and financial institutions exhibit a preference for Islamic banking when raising funds.
State Bank of Pakistan statistics reveal that from January to September, the Islamic banking industry reported a profit before tax of Rs. 266.7 billion, compared to Rs. 124.5 billion in the same period of 2022, indicating a remarkable profitability increase of 114 percent or Rs. 142 billion over the year. Notably, the IBI recorded a profit of Rs. 154.5 billion from January to June 2023 and Rs. 112 billion in the subsequent quarter from July to April.
Comprising 22 Islamic Banking Institutions (IBIs), including 6 full-fledged Islamic banks (IBs) and 16 conventional banks with standalone Islamic Banking Branches (IBBs), the Islamic banking industry saw Meezan Bank maintaining its leading position with a profit before tax of Rs. 114 billion in the last three quarters. Faysal Bank and Bank Islami followed with profits of Rs. 9.05 billion and Rs. 6.6 billion, respectively, in the full-fledged Islamic banks category.
In terms of Islamic banking business profitability, Habib Bank Limited secured the top position with Rs. 18.3 billion in the three quarters of 2023. Ameen, the Islamic banking division of United Bank Limited, and Bank Alfalah followed with profits before tax of Rs. 12 billion and Rs. 10.9 billion, respectively. The industry also witnessed substantial growth in 2023, with nearly Rs. 4 trillion in financing provided to Govt Ijara Sukuk.
By the end of the year, industry assets surpassed Rs. 8 trillion, and deposits exceeded Rs. 6 trillion. The return on assets (before tax) for the industry stood at 4.5 percent, compared to the overall banking industry’s 3 percent, while the return on equity (before tax) was 72%, surpassing the industry’s 52 percent. The operating expense to gross income ratio of the Islamic banking industry was 34.8 percent, compared to the industry’s 41.8 percent. The Non-Performing Financing (NPF) of the industry was notably lower at 3.6 percent compared to the overall banking industry’s 7.7 percent, according to the State Bank of Pakistan.
