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Pakistan : PAKISTAN central bank plans to boost ISLAMIC banking

August 12, 2014

State Bank of Pakistan s (SBP) 5-year strategic plan will drive strong asset growth in the Islamic finance sector, given the domestic demand for Islamic banking.

SBP s targets a 15% share of banking system assets for the sector by 2018, up from around 10%.

The National Bank of Pakistan will convert 6% of conventional branches into Islamic-banking branches over 2 years. Following MCB Bank Limited s aborted efforts to buy a majority stake in Burj Bank it is setting up its Islamic banking subsidiary. Allied Bank Limited has launched Islamic banking operations in 2014 through branches.

The Islamic banking services will help to expand overall banking system penetration, which is low in Pakistan consolidated by banking system deposits accounted for 36% of GDP as of end-2013.

Strong asset growth is expected to drive the growth of Islamic banking in Pakistan. An annual growth rates of 30% between 2009 and 2013, Islamic banking assets has been growing above the industry from a smaller base given their 10% market share. Loan growth accelerated to 34% in 2013 against 7% for the industry with Islamic loans increasing to 8% of total system loans.

The majority of the rated banks deposits are low cost, current and savings accounts. Banks deposit costs rose following the SBP s increases to the minimum rate payable on saving deposit accounts.

The overall trend is positive for Islamic banking in Pakistan, rapid growth in the sector is likely to weaken asset quality.

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Source: TendersInfo (India)

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