ISLAMABAD: Robust growth in Pakistan’s Islamic banking assets is credit positive for banks, says Moody’s Investor Services (Moody’s).

Moody’s in its latest report stated that on 24 March, the State Bank of Pakistan (SBP), released its quarterly Islamic Banking Bulletin for December 2020, which showed that Shariah-compliant banking assets grew 30 percent in 2020. The growth is credit positive for Pakistani banks because it attracts customers from the previously unbanked population, which creates new business opportunities and boosts banks’ financial performance.

Supported by numerous government and SBP initiatives, Islamic banking assets grew to R4.3 trillion as of year-end 2020, comprising 17 percent of total banking system assets, it added.

The report further stated that Islamic deposits have had a 22 percent annual compound growth rate since June 2013. Despite conventional deposits also growing 11 percent annually since June 2013, Islamic banks’ new clients did not erode the existing conventional depositor base. Islamic financing (loans) also grew faster than conventional loans and were Rs1.9 trillion, or 23 percent of Pakistani banks’ total loans at year-end 2020.

The profitability of Islamic operations has also been stronger, with return on assets for Islamic banking institutions was 2.4 percent at year-end 2020, versus the system average ROAA of 1.8 percent, and Islamic nonperforming financing (NPF) was 3.2 percent, lower than the system weighted average of 9.2 percent at year-end 2020.

Copyright Business Recorder, 2021