Home Weekly Islamic Pages Islamic Banking Page 24th July 2020

Islamic Banking Page 24th July 2020


Worlds/Pakistan Islamic Financial Institutions fighting against 2020 Storms

Muhammad Arif : Chairman Centre of Advisory Services for Islamic Banking and Finance (CAIF), Former Head of FSCD SBP, Former Head of Research ArifHabib Investments and Member IFSB Task Force for development of Islamic Money Market, Former Member of Access to Justice Fund Supreme Court of Pakistan

Islamic financial institutions (IFIs) enjoyed good earnings results in 2019 across the main geographical regions of the Middle East, Africa and Asia.

As a group, the leading Islamic banks recorded increased net profit of 20% in 2019; and their average return on assets was a healthy 1.9%.

Consolidation and mergers within the Islamic financing industry remained a key theme.

The Islamic sukuk (bond) market was stronger in 2019, with global issuance rising 26%; key markets in the Gulf Cooperation Council area and Malaysia were strong.

However, the outbreak of Covid-19 is expected to have a major impact on Islamic institutions, just as it has on conventional banks. Lower financing demand, reduced fee income and additional subsidized financing will hit revenues. Nonperforming facilities are forecast to rise, although they may not be booked this financial year. Impairments will rise as well.

Best Islamic Financial Institution for the year 2020 was declared Kuwait Finance House. Best regional winner for Africa was Al Baraka Banking Group, for Asia it was May bank Islamic Berhad, for Europe it was KT Bank and for Middle East it was Qatar Islamic Bank.

For Pakistan Meezan Bank was declared as the best performing bank for the 2020.

Being regulator of Islamic banking, State Bank of Pakistan launched its third Islamic banking strategic plan with deliberations for a separate Islamic banking chapter in Pakistan’s Banking Companies Ordinance. However it is currently underway against the backdrop of the State Bank of Pakistan (SBP) preparing to unveil its next Islamic finance strategic plan in 2020, as the regulator ramps up its efforts to meet the national target of 25% Shariah finance market share by 2023.

 In response to market calls for a separate legislation to govern the Islamic banking industry, the Pakistani banking regulator is currently working on introducing a dedicated Islamic banking chapter into the Banking Companies Ordinance 1962, which currently regulates both conventional and Islamic banking sectors.

Islamic banks stand to gain from State Bank of Pakistan’s latest circulars with the aim to improve the business environment for both corporate and financial institutions; SBP has released new circulars introducing stricter rules on foreign currency financing, addressing risks stemming from outsourcing arrangements and raising real estate exposure limit for banks. For this the:-

Central bank has published a circular requiring all foreign currency Islamic financings, irrespective of amount, to be registered at banks. These include private sector foreign currency funds mobilized through securitized instruments and issuance of bonds/sukuk. Previously, only foreign currency financings above US$1 million were required to be registered with the Exchange Policy Department of the SBP, but the central bank has delegated registration to banks.

The State Bank of Pakistan (SBP) has announced in a statement its adoption of the AAOIFI Shariah standards No 19 (Loan (Qard)), No 23 (Agency and the Act of a Un-commission Agent (Fodooli)) and No 28 (Banking Services in Islamic Banks). The central bank urged all Islamic banking industry players to comply with the standards or risk invoking penal action under the provisions of the Banking Companies Ordinance 1962.

Pakistan now releases sandbox guidelines for regulated sectors, including Islamic financial services Ramping up efforts to encourage innovation in its regulated sectors, the Securities and Exchange Commission of Pakistan (SECP) has issued the Regulatory Sandbox Guidelines 2019 in preparation for the first cohort of the country’s first-ever regulatory sandbox. The guidelines include eligibility criteria and instructions for applicants to ensure they meet requirements; Islamic financial service providers participating are urged to ensure their solutions are consistent with Shariah standards.

Pakistan’s Economic Coordination Committee of the Cabinet has given its approval to the Ministry of Energy (Power Division) to raise PKR 200 billion (US$1.29 billion) through the issuance of Pakistan Energy Sukuk II, proceeds from which will be used to repay liabilities of the distribution companies. According to Gulf Today, the sukuk will use assets of distribution and generation companies as collateral through open competitive bidding.

The State Bank of Pakistan (SBP) has announced in a statement that, with a view to further promoting investment in export-oriented projects, the scope of the Islamic long-term financing facility (ILTFF) has been extended to all sectors, which is allowed as per the Export Policy Order issued by the Ministry of Commerce from time to time. In addition, the maximum financing limit for a single project under the ILTFF has been increased from PKR 2.5 billion (US$16.11 million) to PKR 5 billion (US$32.23 million) for new projects and upgrade of projects.

The State Bank of Pakistan has conducted an open market operation for an outright sale of GOP Sukuk Ijarah for which it received PKR 22.45 billion (US$144.7 million) in bids and accepted PKR 4.65 billion (US$29.97 million), according to a statement.

The Pakistani government is set to borrow PKR 200 billion (US$1.29 billion) from Islamic banks to pay off dues owed to energy firms, and has invited consortiums to submit the desired return in order to acquire the loan at the minimum possible price, . At least one Shariah compliant consortium, led by Meezan Bank, is said to have submitted the desired return; the bids were opened in the presence of the consortiums’ representatives on the 17th February 2020.

Pak-Qatar Takaful’s nationwide branch network has reached over 100 branches across more than 90 cities, the Takaful operator confirmed in a statement. There are plans to further expand the network this year. Serving over 700,000 members and over 1,100 corporate clients, Pak-Qatar Takaful recorded an aggregate turnover of PKR 9 billion (US$58.16 million) in 2019 while Pak-Qatar Family Takaful declared a surplus of about PKR 447 million (US$2.89 million) since its inception.

The Securities and Exchange Commission of Pakistan (SECP) has issued simplified product submission requirements applicable to takaful products that have standardized features, terms and conditions similar to the operators’ existing products, a statement said. The new requirements state that a life insurer is only required to provide details on products with differences in pricing or benefit structure from its other existing products. For Takaful products, a certificate from the Shariah advisor for the permissibility of the product is also required.

As of March 2020-performance of Islamic banks in Pakistan with 4 notable banks
In Rs Deposits








Profit before tax


Profit before Tax


All Islamic banks-22 in numbers with 3250 branches (3226 as on 31-12-2019) 2,652 billion 2,692 billion

(Increase + Rs 40 billion)

1,622 billion 1,634  billion (Increase + Rs 10 billion) 66 billion For the Whole CY year 2019 21 billion
Meezan Bank 790 branches 932 billion 928 billion (Increase – Rs 4 billion) 493 billion 473 billion (Increase – Rs 20 billion) 6 billion 9 billion (Increase + Rs 3 billion)
Bank Islami 330 branches 213 billion as on 30-6-2019 229 billion as on 31-03-2020 (Increase + Rs 16 billion) 105 billion as on 30-6-2018 118 billion as on 30-6-2019 (Increase + Rs 13 billion) 581 million as on 30-6-2019 1,087  million

(Increase + Rs 506 Million)

Al Barkah Bank 192 branches 129 billion 133 billion

(Increase + Rs 4 billion)

75 billion 76 billion (Increase + Rs 1 billion) 139 million as on 31-3-2019 372 million as on 31-3-2020 (Increase + Rs 233 Million)
Dubai Islamic Bank 235 branches 210 billion 226 billion

(Increase + Rs 16 billion)

178 billion 182 billion (Increase + Rs 4 billion) 1,076 million as on 31-12-2019 1,437 million as on 31-03-2020 (Increase + Rs 361 Million)


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