Islamic Banking Industry Assets Reach Rs. 9 Trillion in 2023

Islamic Banking

The Islamic Banking Industry (IBI) in Pakistan has experienced significant growth, with its assets surging to Rs. 9 trillion by the end of 2023. According to the Islamic Banking Bulletin released by the State Bank of Pakistan (SBP), the industry’s assets grew to Rs. 8.9 trillion by December 2023, marking a 24 percent increase from Rs. 7.2 trillion in December 2022.

Deposits within the Islamic banking sector also saw substantial growth, increasing by 30 percent to Rs. 6.7 trillion by the end of 2023, up from Rs. 5.1 trillion the previous year. The Islamic banking sector now holds a 23 percent share of the overall banking industry, reflecting a historic year of achievements.

One of the standout performers in 2023 was Meezan Bank, which became the most profitable bank in the industry. Additionally, Faysal Bank Limited successfully converted to become the second largest Islamic bank, marking the largest conversion of any financial institution globally. Other banks, such as Bank Makramah Limited (formerly Summit Bank) and Zarai Taraqiati Bank, have also announced plans for full conversion to Islamic banking.

Investments in Islamic banking rose dramatically, reaching Rs. 4.2 trillion from Rs. 3 trillion between 2022 and 2023, an impressive 38 percent growth. These investments were primarily directed towards Sukuks issued by the government and private sector, providing secure returns for the banks’ balance sheets. The IBI’s share in overall banking industry financing stands at 16 percent.

However, the growth in Islamic banking financing was modest, with only a 7 percent increase from Rs. 3.1 trillion at the end of 2022 to Rs. 3.3 trillion by the end of 2023. This limited growth indicates a constrained role of Islamic banking in fostering private sector business expansion and overall socio-economic development in the country. High financing rates have been identified as a primary factor deterring greater uptake of Islamic financing.

Despite challenges, including a shortage of trained human resources, the Islamic banking industry expanded its branch network significantly. By the end of 2023, the network grew to 4,955 branches, likely surpassing 5,000 branches early in 2024. In 2023 alone, 559 new branches were opened, averaging more than one new branch per day.

Overall, 2023 was a landmark year for Islamic banking in Pakistan, marked by considerable growth and significant achievements in the industry.