Islamic banking assets grow 22 percent in Q3, deposits cross Rs6 trillion

KARACHI: Pakistan’s Islamic banking industry (IBI) grew by nearly 22 percent in the third quarter of 2023, reaching a record high of Rs8.417 trillion, as more customers opted for Shariah-compliant finance amid a supportive regulatory environment.

The Islamic banking sector deposits crossed the six trillion rupees mark to reach Rs6.160 trillion by the end of September, according to the Islamic Banking Bulletin released by the State Bank of Pakistan last week. The deposits stood at Rs5.021 trillion in the same period last year.

The market share of assets and deposits of IBI in the overall banking industry stood at 19.6 percent and 22.5 percent, respectively in July-September 2023.

The quarterly growth in assets was mainly driven by an increase in investments (net), which exhibited a quarterly rise of Rs456 billion and increased to Rs3.928 billion by the end of September 2023,” the SBP’s report said.

On the other hand, the financing (net) of IBI was recorded at Rs3.026 trillion. The share of investments (net) and financing (net) in total assets of IBI was recorded at 46.7 percent and 35.9 percent, respectively, it added.

Investments (net) of IBI posted a solid growth of Rs456 billion during the period under review and stood at Rs3.928 trillion in July-September last year. “This increase was largely driven by IBI’s investments in the Government of Pakistan domestic Ijarah Sukuk (GIS),” the SBP said.

Pakistan is the world's fifth most populated country with the world’s second-largest Muslim population. The country is estimated to have a population of around 232 million of which 96.5 percent are Muslim, indicating the need for Shariah-compliant banking services.

According to a recent study conducted by SBP in collaboration with the Department for International Development (DFID), religious beliefs contribute 23 percent to demand for Islamic banking and the overall demand for Islamic banking is higher amongst households (retail) than businesses.

The SBP intends to convert current conventional banks into Islamic financial institutions. In line with its strategic vision for 2023–2028, it intends to do this by creating a roadmap for the switch to Islamic banking and coordinating with banks to make the conversion.

Furthermore, the Federal Shariat Court's historic ruling, which mandates that Pakistan's banking sector comply with Shariah by 2027, has set a high bar for the Islamic banking sector.