Silk Bank to grow in Islamic banking

KARACHI: Silk Bank Limited plans to expand its Islamic banking business amid growing demand for Shariah-compliant financial products in the country, the bank’s top official said on Monday.

“At least 50 percent of all new branches are expected to be Islamic in the next three-five years,” Shaukat Tarin, advisor to chairman at Silk Bank, said at a news conference. “We have a very big market for Islamic finance and we require tapping its true potential,” he said, and added, “We are committed to expand our Islamic banking footprint.”

Tarin said the bank could divide its operations into Islamic and conventional banking both in near future. Silk Bank’s share of Islamic banking has gone up from six percent in 2013 to 17 percent in the first half of 2017.

The State Bank of Pakistan has given approval to the bank for opening of 20 Islamic and 15 conventional branches this year. Unveiling the bank’s other future plans, Tarin said the bank was going to reduce the size of corporate banking, but increase consumer and SME segments.

“We will expand lending to consumers and small and medium sized businesses, where the bank sees great potential for growth,” he said.   “Shrinking banking industry’s spreads on the back of low interest rates provide an excellent opportunity for banks to enhance their penetrations in consumer and SME banking sides.”

The bank’s consumer banking portfolio continued to grow, while its non-performing loans fell by Rs10 billion in January-June 2017. The bank also made its commitment to revive the mortgage business in the current low interest rate environment, to provide further growth in the consumer banking business.

“We will go for the mortgages that are going to generate huge demand in a country like Pakistan, which is short of 10 million houses,” Tarin said. “We are expanding into different areas that will help pick up the momentum of consumer banking.”

He said the consumers could get housing loans at relatively cheaper rates ranging from 8-8.5 percent owing to low interest rates. However, the infrastructure for consumer banking needs to be improved through expanding merchant network.  

Earlier, Shuja Alvi, head of investment at Silk Bank, said the bank continued to make heavy investments. Since acquisition, the sponsors have invested Rs430 billion in the bank through multiple funding, he added.

“The year 2016 has seen a return to the credit cycle last witnessed in 2002-06 period. Now banks are flushed with liquidity and Silk Bank is a big beneficiary of the game,” he added. The assets of Islamic banking industry rose to Rs2 trillion in the second quarter of 2017 from Rs1.885 trillion in the previous quarter, according to Islamic banking bulletin published by the State Bank of Pakistan the same day.

Deposits at Islamic banks reached Rs1.720 trillion during April-June this year compared with Rs1.564 trillion in January-March 2016 period.  Profit after tax of Islamic banking industry was registered at Rs8.8 billion by end June, 2017 compared with Rs6.1 billion in the same quarter last year.