As leading Islamic banks prepare to announce their full-year results, the Islamic banking industry (IBI) is expected to achieve nearly 100 percent profit growth in 2023, reflecting consistent and remarkable expansion across various aspects.
Industry estimates indicate that the profit before tax for Islamic banking is projected to range between Rs. 350 billion and Rs. 400 billion, driven by significant growth in assets, deposits, and investments.
This growth trajectory in the IBI is attributed to the increasing preference of consumers from diverse segments towards Sharia-compliant banking, especially following a Federal Sharia Court verdict to Islamize the banking system. Additionally, both the government and financial institutions are favoring Islamic banking for fundraising purposes.
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According to statistics from the State Bank of Pakistan, the Islamic banking industry reported a profit before tax of Rs. 266.7 billion from January to September, marking a substantial increase from the Rs. 124.5 billion reported during the same period in 2022. This represents a remarkable profitability growth of 114 percent or Rs. 142 billion year-over-year. In the first half of 2023, the IBI recorded a profit of Rs. 154.5 billion, followed by Rs. 112 billion in the subsequent single quarter from July to April.
By September 2023, the Islamic banking industry comprised 22 Islamic Banking Institutions (IBIs), including 6 full-fledged Islamic banks (IBs) and 16 conventional banks with standalone Islamic Banking Branches (IBBs). Among them, Meezan Bank maintained its leading position with a profit before tax of Rs. 114 billion in the last three quarters, followed by Faysal Bank with Rs. 9.05 billion and Bank Islami with Rs. 6.6 billion in the same period among full-fledged Islamic banks.
Habib Bank Limited recorded the highest profitability in the Islamic banking sector, standing at Rs. 18.3 billion in the first three quarters of 2023. This was followed by the Islamic banking division of United Bank Limited, Ameen, with Rs. 12 billion, and Bank Alfalah with Rs. 10.9 billion profit before tax.
Islamic banking also witnessed significant growth in financing, with nearly Rs. 4 trillion provided to Govt Ijara Sukuk in 2023. Assets surged to over Rs. 8 trillion and deposits to over Rs. 6 trillion by the end of the same year.
The industry’s return on assets (before tax) stood at 4.5 percent, compared to 3 percent for the overall banking industry, while the return on equity (before tax) reached 72 percent, compared to 52 percent for the industry as a whole. The operating expense to gross income ratio of the Islamic banking industry was 34.8 percent, lower than the industry average of 41.8 percent.
The Non-Performing Financing (NPF) ratio of the Islamic banking industry was notably lower at 3.6 percent compared to the overall banking industry’s 7.7 percent, according to data from the SBP.