Pakistan to witness 30% growth in Islamic banking market share by 2025: Moody’s

• "We expect annual growth of over 25% over the next five years," Moody's report.
• Islamic banks in Pakistan are growing at a rapid pace compared to conventional counterparts.
• Moody's believe that increasing usage' of digital, electronic channels will support the industry's growth.

The Shariah-compliant banks in Pakistan are growing at a rapid pace compared to conventional counterparts with a combination of a predominantly Muslim population, still modest financial inclusion, and the commitment of the government and regulators as the key driving forces.

According to a report released by the Moody’s Investors Service, Islamic banking assets in Pakistan have grown by an average of 24% per annum over the past decade to Rs5,577 billion ($31.2 billion), accounting for around 19% of total banking assets, up from 8% in 2011.

“We expect annual growth of over 25% over the next five years, pushing up the sector’s market share to around 30%,” the financial services company predicted.

According to the report:

• Islamic banking industry has grown by 24% a year on average over the last decade — expanding by 30.6% in 2021 alone
• Total Islamic banking assets accounted for 18.6% of total banking assets at the end of 2021, standing at Rs5,577 billion, up from Rs641 billion in 2011
• Deposits stood at Rs4,211 billion, holding a 19.4% market share, with an average annual growth of 23% over the period
• Net financings amount to Rs2,597 billion, or a 25.7% market share and have grown even faster than deposits, reaching an average expansion of 29% over the past decade

“The outperformance of financings is likely driven by the more limited availability of Shariah-compliant liquidity products as well as strong demand for financing products,” Moody’s reported.

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It is worth mentioning that the Islamic banking industry in Pakistan comprises 22 Islamic banking institutions, consisting of five fully-fledged Islamic banks and 17 conventional banks that have Islamic banking branches.

A total of 3,956 branches were in operation as of December 2021, with an additional 1,442 Islamic banking windows (dedicated counters at conventional branches).

In 2021, 500 branches were added, and “we expect at least a similar number of new branches to be added yearly over the next five years.”

Moody's was of the view that increasing usage' of digital and electronic channels will support the industry's growth. “We expect more banks to apply for Islamic banking licenses and for conventional banks to convert to fully Islamic banks,” projected the financial services company.

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Shedding light on the financial indicators, the report said that Islamic banking institutions in Pakistan are more profitable than their conventional counterparts and their loan performance is better.

The finance company has set targets for achievement by 2025 include:

• 30% share of total banking assets and deposits
• 35% share of the branch network
• Catering for underserved sectors, and setting a 10% and 8% share of SME and agriculture financing