The State Bank of Pakistan (SBP) has given a green signal to Summit Bank Limited to convert its conventional core banking activities into Islamic mode. This would be first of its kind that migration of any countryís bank from conventional to Shariah-based Islamic banking in the banking history of Pakistan at a massive level. The Summit Bank prior to this approval was deciding to open Shariah-compliant banking in the selected branches with a label of "Noor", however, later the management of the Bank planned to change the complete bank into a Shariah-compliant bank.
Summit Bank would start its latest banking operations from March-2014 and an overall three years will be required to convert all banking operation into an Islamic mode. After conversion to Islamic mode of financing, the Bank will be the second largest Shariah-based Islamic bank in terms of branches network in Pakistan. Presently, the bank is administrating with 187 branches in key cities of Pakistan. The State Bank also evaluated the Summit Bank's management capital advocacy plan that explains an injection of Rs5 billion capital during this calendar year to meet the mandatory regulatory condition of SBP to maintain MCR at Rs10 billion.
SBP has set a goal of 15 percent share for Islamic Banking by 2017. It has also decided to raise twice the number of branches of Islamic banks and Islamic banking division of different commercial banks from 1,000 to 2,000 over the upcoming 4-year. It is also told that Summit Bank has been awarded permission because the State Bank has prioritized Islamic banking promotion in Pakistan. Although Summit Bank Ltd is one of the fastest growing commercial banks in the country, which has expanded its network across the country very shortly and has built an infrastructure based on state-of-the-art risk management as well as IT structure. Also aiming to be a universal bank in terms of offering products and services in all major segments of banking i.e. commercial mid market/SMS, trade finance, consumer banking and corporate and investment banking it started its operations in August 2006.
However, by acquiring one of the best IT platforms of the world, giving SMS and web-based banking to the clients besides giving superior MIS to the management; the Bank is committed to be recognized as a preferred supplier of financial services to the markets it serves.
To achieve the long term targets, the Summit Bank will strengthen itself in the financial service industry; attain product and service differentiation, leverage optimal mix of technology to achieve operating cost efficiencies, while at the same time growing its footprint by further growth of its branch network all over Pakistan. Keeping in view the update IT infrastructure of the bank and introduction of many value added services for its clients, the Bank is now looking for enhancement in its customer base by further providing lucrative and innovative assets, deposits and other services products (Summit prepaid card, loyalty and discount debit card, Summit golden loan account and cash management services).
During the quarter, the net markup income of the Bank has raised by Rs138.287 million (September 30, 2013: Rs279.151 million, June 30 2013: Rs140.864 million) as a result of managementís approach to improve its net mark up income by rationalizing its return on funds deployed, improving recovery against NPLs and declining cost of deposits.
Despite the fixation of high mandatory cost on saving deposits by the State Bank of Pakistan (SBP), Summit Bank has succeeded to decline its cost of deposits to 5.97 percent in September 30, 2013, which reflects reduction of 18 percent in overall cost of deposits. This has been got because of managementís commitment to raise its CASA deposits, dilution of high cost of deposits and widening its client base.
On the front of the higher NPLs i.e. Rs23,409 million as of December 31, 2012 of the bank, the managementís concentrated, coordinated and untiring attempts for their early recovery resulted in considerable reduction in NPLs by Rs3,418 million thus declining the NPLs to a value of Rs19,991 million as of September 30, 2013. This consequently concluded in reversals in provision against NPLs by Rs2,358 million. However, this was approximately absorbed by the extra provisions against NPLs made during the period amounting to Rs2,223 million.
The additional provisions chiefly comprise of impact of reduction of FSV advantage and downgrading of existing NPLs in line with regulatory demands. Importantly, all these attempts declined the infection ratio by 5.04 percent, which presently stands at 31.01 percent comparison with 36.05 percent as of December 31, 2012 through gross advances remained almost at the same period.
Commission, fees and brokerage income raised approximately 27 percent i.e. Rs127.459 million.
Shariah-compliant Islamic Banking is growing at a faster pace than conventional banking. During the third quarter of 2013, total assets had increased by 24.8 percent to Rs926 billion by close-September 2013, from Rs742 billion at end-September 2012. Islamic banking deposits increased by 23.4 percent YoY (year-on-year) to Rs775 billion. Deposit-wise, the share of Islamic banking in the total banking industry enlarged to 10.1 percent by September 30. The number of Islamic banking branches and sub-branches jumped up by 18.8 percent to 1,161 during the same period. The State Bank reviewed that Islamic banking increased at an annualized rate of 30 percent for the previous 5-year. Islamic banks are also not bound by SBPís minimum deposit rate requirement, which basically shields them from rises in the central bankís discount rates.