It is true that Islamic banking in Pakistan has attained a significant share of the overall banking industry. Though the data used in this article may look a little outdated, it presents a fairly reasonable picture.
Assets of the Islamic Banking Industry (IBI) grew by PKR 121 billion during July-September 2022 quarter and were recorded at PKR 6,902 billion by the end of September 2022.
Deposits of IBI also increased by PKR 165 billion during the period under review and crossed the five trillion mark to reach PKR 5,021 billion by the end of September 2022.
The year-on-year (YoY) growth of assets and deposits of IBI was recorded at 41.3% and 31.4%, respectively by the end of September 2022. The market share of assets and deposits of IBI in the overall banking industry rose to 20% and 21%, respectively by the end of September 2022.
During the period under review, net investments and financing of IBI observed growth of PKR 149 billion and PKR 24 billion, respectively. As a result, the market share of financing of IBI in advances of the overall banking industry reached 27%, while the share of investment reached 15.7% by the end of September 2022.
The network of IBI is comprised of 22 Islamic Banking Institutions (IBIs), including 5 full-fledged Islamic Banks (IBs) and 17 Conventional Banks having Islamic Banking Branches (IBBs). During the period under review, 105 branches were added to the branch network of IBI. With this addition, the branch network of IBI reached 4,191 (spread across 129 districts of the country) by the end of September 2022.
The Islamic banking windows (dedicated counters at conventional branches) operated by IBBs stood at 1,467 by the end of September 2022.
During the period under review, the assets of IBI increased by PKR 121 billion and stood at PKR 6,902 billion as compared to PKR 6,781 billion in the previous quarter.
The market share of IBI’s assets in overall banking assets also increased to 20% by the end of September 2022 as compared to 19.5% in the previous quarter. The expansion in the asset was mainly backed by investments (net) that exhibited a quarterly upsurge of PKR 149 billion.
Likewise, the financing (net) of IBI experienced an escalation of PKR 24 billion during the period under review. The share of investments (net) and financing (net) in the total assets of IBI was recorded at 40.9% and 43.3%, respectively by the end of September 2022.
Assets of IBs observed a surge of PKR 23 billion and touched PKR 3,760 billion by the end of September 2022. Besides, the assets of IBBs increased by PKR 98 billion and were recorded at PKR 3,142 billion by the end of September 2022. The share of IBs and IBBs in the overall assets of IBI was registered at 54.5% and 45.5%, respectively by the end of September 2022.
Investments (net) of IBI moved up by PKR 149 billion during the period under review to reach PKR 2,821 billion by the end of September 2022. This increase was mainly due to investments made by IBI in the Government of Pakistan (GoP) domestic Ijarah Sukuk (GIS).
GoP issued six GIS amounting PKR 120 billion during the period under review. The breakup of the investments (net) portfolio of IBs and IBBs illustrates that investments (net) of IBs increased by PKR 43 billion during the period under review and were recorded at PKR 1,651 billion by the end of September 2022.
In contrast, investments (net) of IBBs witnessed a quarterly rise of PKR 106 billion to reach PKR 1,170 billion by the end of September 2022. The share of IBs and IBBs in overall investments of IBI was 58.5% and 41.5%, respectively by the end of September 2022.
Financing and related assets (net) of IBI rose by PKR 24 billion during the period under review and stood at PKR 2,985 billion by the end of September 2022. The YoY growth of financing of IBI was recorded at 31.7% by the end of September 2022.
The breakup of financing and related assets (net) among IBs and IBBs divulges that financing and related assets (net) of IBs experienced a quarterly increase of PKR 33 billion to reach PKR 1,527 billion by the end of September 2022. However, financing and related assets (net) of IBBs decreased by PKR 9 billion and were recorded at PKR 1,458 billion by the end of September 2022.
It is pertinent to mention that the growth of the financing portfolio of IBI remained impressive during the last few years. Consequently, the market share of financing of IBI in advances of the overall banking industry increased to 27% by the end of September 2022 as compared to 24.7% by the end of September 2021.
The mode-wise break-up of financing divulges that the share of Diminishing Musharaka (35.2%) continued highest in the overall financing of IBI, followed by Musharaka (22.9%) and Murabaha (15.7%) by the end of September 2022.
In terms of the sector-wise break-up of financing, textile (16.4%), agribusiness (13.6%) and production & transmission of energy (10.9%) remained the three dominant sectors in terms of their share in the overall financing of IBI by the end of September.
The breakup of client wise financing portfolio shows that the share of the corporate sector (68.8%) remained highest in the overall financing of IBI followed by commodity financing (16.2%) and consumer finance (10.8%). Conversely, the share of SMEs and agriculture financing remained low compared to the overall banking industry’s share in financing to these sectors.
The nonperforming finances (NPFs) to financing (gross) ratio of IBI remained unchanged and stood at 2.6% by the end of September 2022. However, the net NPFs to net financing ratio further improved and was registered at 0.1% by the end of September 2022 from 0.3% in the previous quarter while the provision to NPFs ratio was 94.4%. The abovementioned ratios remained relatively better than those of overall banking industry averages.
Deposits of IBI expanded by PKR 165 billion during the period under review and were recorded at PKR 5,021 billion by the end of September 2022. The market share of IBI’s deposits in the overall banking industry deposits increased to 21% by the end of September 2022 as compared to 20.5% in the previous quarter.
The category-wise breakup of customers’ deposits depicts that fixed deposits and saving deposits were up by PKR 55 billion and PKR 67 billion, respectively during the period under review. However, current deposits decreased by PKR 14 billion. In contrast, the financial institution’s deposits increased by PKR 47 billion during the period under review.
The deposit base of IBs and IBBs was recorded at PKR 2,673 billion and PKR 2,348 billion, respectively by the end of September 2022. The share of IBs and IBBs in overall deposits of IBI stood at 53% and 47%, respectively by the end of September 2022.
Liquid assets to total assets and liquid assets to total deposits stood at 40.8% and 56.1%, respectively by the end of September 2022. The financing-to-deposit ratio of IBI was recorded at 59.4% by the end of September 2022.
Like previous quarters, the financing-to-deposits ratio of IBI remained considerably higher than the overall banking industry average.
Capital to total assets and capital minus net NPAs to total assets ratios of IBI were recorded at 5.8% and 5.6%, respectively by the end of September 2022. These ratios were in line with the overall banking industry ratios.
Profit before tax of IBI was recorded at PKR 124.5 billion by the end of September 2022. Profitability ratios like return on assets (ROA) and return on equity (ROE) – before tax was recorded at 2.6% and 46.4%, respectively by the end of September 2022.
Faysal Bank
Faysal Bank (FABL) posted its highest-ever bottom line of PKR11.23 billion for CY22, up 38%YoY. On the balance sheet front, assets/deposits of the bank ended the year at PKR1.0 trillion and PKR782 billion with deposit market share averaging at around 3.5% during CY22. On the capital adequacy front, CAR was reported at 15.5% at the end CY22.
The Bank’s investment mix underwent a significant shift towards Ijarah Sukuks, which accounted for 81.3% of the total investment book in CY22 as compared to 45% in CY21.
This was due to the bank’s ongoing Islamic conversion, which led to the retirement of conventional products. With regards to leftover PIBs amounting to PKR14.7 billion, these investments have been ring-fenced, and their future earnings will be pledged to charitable activities.
With regards to FABL’s cost-to-income ratio being one of the highest in the industry, management claims the ratio is overstated due to a sharp increase in bank branches during the past few years (more than 300 branches were added between CY18-22).
The revenue and transaction generation in these newer branches are still in the early stages, and once the branch network begins to mature, the growth of operating expenses will slow down, and the ratio will normalize.
Regarding the payout, the management stated that there is no clear-cut dividend policy, and it is at their discretion. However, with the conversion process now over and assuming that the CAR remains at healthy levels, the management claims that the bank may begin paying out regularly going forward.
With regards to deposit growth, management aims to achieve growth of 22-25%, while estimating the overall industry to grow by 14-15%.
With regards to future NPLs/provisions, management claims they’re keeping an eye on their loan-book portfolio and don’t see any significant provisions going forward. To note, the bank posted reversals of PKR940 million during CY22.
FABL aims to achieve a healthy portion of current accounts in its mix going forward. However, it is worth noting that the current account segment mostly caters to SMEs and commercial businesses, making it a risky and volatile avenue in the present economic environment. Once the situation stabilizes, the bank aims to achieve solid current account deposit mobilization going forward.
Regarding IFRS-9 implementation, FABL has been reporting an IFRS-9 adopted statement to its holding company in Bahrain for many years now. Once formally implemented, FABL expects minimal impact on capital adequacy, estimated to be around 20-25bps.