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Islamic Banking Industry Likely to Record 100% Profit Growth in 2023

As the results of the leading Islamic banks are made ready for full-year announcement, the profitability of the Islamic banking industry (IBI) is likely to record nearly 100 percent growth in 2023 with a consistent and outstanding expansion on multiple heads.

According to industry estimates, the profit before tax of Islamic banking will settle between Rs. 350 billion and Rs. 400 billion due to the tremendous trend of growth within the industry, including values of assets, deposits, and investments.

 
 

The high growth pattern of the IBI was observed as the increasing inclination of consumers from different segments towards Sharia-based banking after the verdict of a Federal Sharia Court for Islamizing the banking system. Moreover, the government and financial institutions also prefer Islamic banking when it comes to raising funds.

The State Bank of Pakistan’s statistics said that the Islamic banking industry generated a profit-before-tax of Rs. 266.7 billion from January to September as compared to a profit of Rs. 124.5 billion reported in a similar period of 2022, showing 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 of 2023 and Rs. 112 billion in the next single quarter of July to April.

The Islamic banking industry consists of 22 Islamic Banking Institutions (IBIs), including 6 full-fledged Islamic banks (IBs) and 16 conventional banks having standalone Islamic Banking Branches (IBBs) by the end September-2023 Meezan Bank maintained its leading position among commercial and Islamic banks with the before-tax profit stood at Rs. 114 billion in the last three quarters. It is followed by Faysal Bank with Rs. 9.05 billion and Bank Islami with Rs. 6.6 billion during the same period in the category of full-fledged Islamic banks.

Habib Bank Limited maintained the highest profitability in the Islamic banking business which stood at Rs. 18.3 billion in the three quarter of 2023. It is 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. In 2023, Islamic banking also witnessed tremendous growth in 2023 with nearly Rs. 4 trillion financing made to Govt Ijara Sukuk.

The assets of the industry surged to over Rs. 8 trillion and deposits to over Rs. 6 trillion by the end of the same year. The return on assets (before tax) of the industry stood at 4.5 percent as compared to 3 percent of the overall banking industry whereas the return on equity (before tax) stood at 72% as against 52 percent of the industry. The operating expense to gross income ratio of the Islamic banking industry stood at 34.8 percent as against 41.8 percent of the industry.

The Non-Performing Financing (NPF) of the industry stood at 3.6 percent as compared to 7.7 percent of the overall banking industry, according to the SBP.

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