As the results of the leading Islamic banks are prepared for full-year announcement, the profitability of the Islamic banking industry (IBI) is expected to grow by nearly 100 percent in 2023, with consistent and outstanding expansion across multiple areas.
Profitability of Islamic banking industry
According to industry estimates, Islamic banking’s profit before tax will range between Rs. 350 billion and Rs. 400 billion as a result of the industry’s tremendous growth, including asset values, deposits, and investments.
The IBI’s rapid growth was attributed to an increasing inclination of consumers from various segments towards Sharia-based banking following a Federal Sharia Court’s decision to Islamize the banking system. Furthermore, the government and financial institutions prefer Islamic banking.
According to State Bank of Pakistan statistics, the Islamic banking industry generated a profit-before-tax of Rs. 266.7 billion from January to September.
Compared to a profit of Rs. 124.5 billion reported in a similar period in 2022, resulting in a whopping profitability of 114 percent or Rs. 142 billion over the year.
The IBI made a profit of Rs. 154.5 billion from January to June 2023, and Rs. 112 billion in the following quarter, July to April.
Islamic Banking Branches
The Islamic banking industry consists of 22 Islamic Banking Institutions (IBIs), including 6 full-fledged Islamic banks (IBs) and 16 traditional banks with standalone Islamic Banking Branches (IBBs).
By the end of September 2023 Meezan Bank maintained its leading position among commercial and Islamic banks, with a before-tax profit of Rs. 114 billion in the last three quarters.
Category of full-fledged Islamic banks
In the category of full-fledged Islamic banks, it is followed by Faysal Bank with Rs. 9.05 billion and Bank Islami with Rs. 6.6 billion over the same time period.
Habib Bank Limited maintained the highest profitability in the Islamic banking business, with Rs. 18.3 billion in the third quarter of 2023.
It is followed by Ameen, the Islamic banking division of United Bank Limited, with Rs. 12 billion, and Bank Alfalah, with Rs. 10.9 billion in profit before tax. In 2023, Islamic banking experienced tremendous growth, with nearly Rs. 4 trillion in financing provided to the government through Ijara Sukuk.
By the end of the year, the industry’s assets had risen to over Rs. 8 trillion, while deposits had risen to more than Rs. 6 trillion.
The industry’s return on assets (before tax) was 4.5 percent, compared to 3% for the overall banking industry, and the return on equity (before tax) was 72%, compared to 52% for the industry.
Industry’s Operating Expense
The Islamic banking industry’s operating expense to gross income ratio was 34.8 percent, compared to 41.8 percent for the overall industry.
According to the SBP, the industry’s Non-Performing Financing (NPF) rate was 3.6 percent, compared to 7.7 percent for the overall banking industry.
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