Presentation on theme: "AL-HUDA CENTRE OF ISLAMIC BANKING & ECONOMICS"— Presentation transcript:
1 AL-HUDA CENTRE OF ISLAMIC BANKING & ECONOMICS EventThe 4th International Conference & Exhibition on Islamic Banking & Takaful 2010Topic for PresentationIslamic Banking In Pakistan- Review and ProgressDate & VenueNovember 02, 2010, Expo Centre, Lahore.Presentation byProf. Dr. Khawaja Amjad SaeedProfessor Emeritus & Founder Principal, Hailey College of Banking & Finance, University of the Punjab, Lahore Pakistan ( ), Member Governing Council, International Federation of Accountants (IFAC), New York ( ), President, South Asian Federation of Accountants (SAFA) (1997), President, Institute of Cost and Management Accountants of Pakistan ( ), President, Association of Management Development Institutions of South Asia (AMDISA) ( ), Pro Vice-Chancellor University of the Punjab, Lahore ( ), Founder Director, Institute of Business Administration (IBA), University of the Punjab, Lahore ( ).
2 WELCOME TO OUR PROGRAM Presentation Frame A. Islamic Banking-InretrospectB. Growth of Islamic BanksC. IBIs FinancingD. IBIs InvestmentsE. Selected Performance Indicators: IBIs & Banking IndustryF. Future Outlook
3 A: ISLAMIC BANKING - INRETROSPECT Vision and Mission of Islamic Banking Department of SBPStrategy for Islamic Banking in PakistanHistorical Rundown
4 A-1: Vision & Mission of Islamic Banking Department of State Bank of Pakistan (SBP) State Bank of Pakistan, in its role as central bank, has developed the following aspects:1. Vision“To make Islamic Banking the baking of first choice for the providers and users of financial services”.2. Mission“To promote and develop Islamic Banking industry in line with the best intersectional practices, ensuring Shariah compliance and transparency”.It is very important that the stakeholders to revisit the above aspects reflected as vision and mission. Motivated by the enlightened guidance provided by State Bank of Pakistan, all Islamic Banks must follow sunshine vision and driving mission. These aspects need to be indoctrinated in the minds of all stakeholders so that their efforts are reflected in real life situation as achievement motivation.
5 A-2: STRATEGY FOR ISLAMIC BANKING IN PAKISTAN THREE PRONGED STRATEGYIn Pakistan, State Bank of Pakistan has followed three point strategy relating to development of Islamic Banks. These strategies include the following:Full fledged banks can be established in Pakistan.Islamic Banks can set up their subsidiaries.Stand-alone Islamic Banking branches opened by conventional banks in Pakistan. Therefore, flexibility exists in respect of starting and expanding Islamic Banks in Pakistan.
6 A-3: HISTORICAL RUNDOWN 1. Pakistan was created out of Islamic Ideology. Therefore Islamic Banking gets support for its development.2. Quaide-e-Azam Mohammad Ali Jinnah, father of the Nation, while inaugurating the State Bank of Pakistan on July 01, 1948 had guided Research Department of SBP to help develop Islamic Economic System which is based on equality and brotherhood.3. Constitution of PakistanArticle 38 (f) of the Constitution of Pakistan is quoted below:“The state shall eliminate riba as early as possible”.
7 A-3: HISTORICAL RUNDOWN s to 21st Centurya : efforts, in their initial stages, started to eliminate riba.b. 1980s: Bold and comprehensive initiatives were taken. Pakistan joined the race of three countries in the world for interest free banking several existing laws were reviewed. New financial instruments were introduced, Twelve Non-Interest Based (NIB) modes were released to replace riba based practices, Profit & Loss Sharing concept was introduced.c s: Court battles were on instructions were issued by courts for a time framework for implementation of replacing conventional banks into Islamic Banks. However the system did not positively respond for implementation.d. 2000s: In January 2002 Commission for Transformation of Financial System was constituted in SBP. Task Force was set up to suggest ways to eliminate interest from government financial transactions.However, the end conclusion has been to continue parallel banking ie. Conventional and Islamic Banks. This system is going on in Indonesia and Malaysia also.
8 B: GROWTH OF ISLAMIC BANKS Important IndicatorsGrowth of Islamic Banks BranchesIslamic Banking Branches NetworkFull Fledged Islamic BanksIslamic Branches of Conventional BooksCity wise break-up of Islamic Banking BranchesIslamic Banks sub-branchesMaximum & Minimum braches network at Islamic Banks
9 B-1: GROWTH OF ISLAMIC BANKS: Some Important IndicatorsDecember 2003-March 2010YearTotal AssetsDepositsNet financing investment(December)Total Rs.bShare of IBIs Rs.b200313181020044423020057250482006119384732007206414713820082765202186200936862832262010 (March)371289229Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, P.3.9
10 B-2: GROWTH OF ISLAMIC BANKS BRANCHES December 2003-March 2010Year (December)NumberBase IndexNumber of Times2003171001200448300320057041242006150882920072891,70020085153,0293020096513,829382010 (March)6543,847Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, P.3.
11 B-3: ISLAMIC BANKING BRANCHES NETWORK As on December 31, 2009ParticularsNumberNumber ofBranches%A: Full Fledged Islamic Banks640023B: Islamic Branches of Conventional Banks1316850C: Sub-Branches7812726649100Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, December 2009, P.16.
12 B-4: ISLAMIC BANKING BRANCHES NETWORK As on December 31, 2009S. No.ProvinceNumber%1.Punjab290452.Sindh218343.Khyber Pakhtoonkhwa70104.Baluchistan3255.Federal Capital316.Azad Kashmir0717.Northern Area-649100Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, December 2009, P.18.
13 B-5: FULL FLEDGED ISLAMIC BANKS As on December 31, 2009S. No.BanksNumber of Branches%1.Meezan Bank Ltd166412.Bankislami Pakistan70183.Emirates Global Islamic Bank Ltd58154.Dawood Islamic Bank Ltd42105.Dubai Islamic Bank Pakistan Ltd3596.Al Barka Islamic Bank297400100
14 B-6: ISLAMIC BRANCHES OF CONVENTIONAL BANKS As on December 31, 2009S. No.BanksNumber of Branches%1.Bank Alfalah Ltd60362.Askari Bank Ltd29173.The Bank of Khyber18104.MCB Bank Ltd1165.Standard Chartered Bank1296.National Bank of Pakistan857.Bank Al-Habib Ltd48.Faysal Bank Ltd9.Soneri Bank Ltd10.United Bank Ltd311.Habib Metropoltian Ltd212.The Royal Bank of Scotland13.Habib Bank Ltd1168100Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, December 2009, P.16.
15 B-7: CITY-WISE BREAK-UP OF ISLAMIC BANKING BRANCHES As on December 31, 2009S. No.ProvinceNumber%1.Punjab38472.Khyber Pakhtoonkhwa17213.Sindh12154.Baluchistan10135.Azad Kashmir26.Federal Capital17.Northern Area81100Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, December 2009, P.18.
16 B-8: ISLAMIC BANKS SUB BRANCHES As on December 31, 2009S. No.BanksNumber of Branches%1.Bank Alfalah Ltd35442.Bankislami Pakistan Ltd3240673.Dawood Islamic8104.Askari Bank Ltd25.Emirates Global Bank Ltd6.Dubai Islamic Bank Ltd17.The Bank of Khyber81100Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, December 2009, P.16
17 B-9: MAXIMUM & MINIMUM BRANCHES NET WORK OF ISLAMIC BANKS AS on December 31, 2009S. No.ProvinceNumberMaximumMinimum1.Sindh/Karachi (Five Cities)18012.Punjab/Lahore (Twelve Cities)1093.Federal Capital/Islamabad31-4.Khyber/Pakhtoonkhwa (Eight Cities)285.Baluchistan/Quetta (Eight Cities216.Azad Kashmir/Mirpur AK Muzafarabad437.Northern Area/GilgitSource: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, December 2009, P.18.
19 C-1: IBIs FINANCING: SECTORAL COMPOSITION MARCH 2010 S. No.Sectors%1.Textile202.Individuals3.Chemical & Pharma104.Sugar065.Energy Products & Transmissions046.Cement03637.Other Sectors (Including 31% others)37100Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, Table 6, P. 5.
20 C-2: IBIs FINANCING PRODUCTS (Total Rs. 162b) MARCH 2010S. No.Products%1.Murabaha382.Diminishing Musharaka323.Ijarah14844.Others (Istisna: Salam, Musharaka, Murahaba)04100Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, Table 5, P. 5.
21 C-3: IBIs NPFs TIME SERVICES Net NPFs to Net Financing PeriodNPFs to FinancingNet NPFs to Net FinancingProvisions to NPFD%March 20094.52.351December 20096.33.152March 20107.33.850Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, Table 4, P. 5.
23 D-1: IBIs INVESTMENTS: COMPOSITION ParticularsRs. b%1. Federal Govt Securities27372. TFCs, Debentures, Bonds & PTCs25343. Fully Paid up Ordinary Shares020354744. Others20101Less: Provision01Net Investment73100Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, Table 7, P. 6.
24 D-2: IBIs INVESTMENTS TYPES ParticularsRs. b%1. Available for Sale59812. Held to Maturity121671973. Others030474101Less: Provision0173100Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, Table 7, P. 6.
26 E-1: SELECTED PERFORMANCE INDICATORS: IBIs & BANKING INDUSTRY S. No.ParticularsMarch, 20101.CAPITALIBIsIndustry(Capital to Total Assts)11.410.32.ASSETS QUALITYNPLs to Financing7.313.1Net NPLs to Net Financing3.84.2Provisions to NPEs50.070.9Net NPAs to total to total CapitalReal Estate Financing to total Financing11.32.43.EARNINGS & PROFITABILITYNet Income to total Assets0.81.1ROE7.010.9Net Income to Gross Income81.174.0Net Interest Income to Gross income18.926.0
27 E-1: SELECTED PERFORMANCE INDICATORS: IBIs & BANKING INDUSTRY S. No.ParticularsMarch, 2010Trading & Exchange Gains/Losses to Gross Income7.09.0Operating Expenses to Gross Income70.251.8Personnel Expenses to Operating Expenses32.237.4Spread between Financing and Deposit Rates7.76.6Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, Table 2, P. 3-4.
29 F-1: FORECASTSBy 2012, total of Islamic Banking industry is forecasted as Rs. 1 trillion.In the next five years, 1200 branches of Islamic Banks are vitalizedThe hope is that it will be 12% of total banking industry
30 F-2: CHALLENGES We visualize the following future challenges: 15,000 people are needed in the next five years to equip Islamic Banks. In this respect Universities in Pakistan must respond to this challenge. Curricula must be changed in management education. High Education Commission should provide motivation in this respect for Universities to positively respond.Islamic Banks must demonstrate growth with profitability. The top management must evolve the process to translate the above challenges.The scope of services for user may be extended to such areas as micro finance, agriculture and small & medium enterprises. This will widen the base of socio-economic development in our country and will address to the two vital issues in our country namely, promotion of employment opportunities and alleviation of poverty.Sharia compliant financial services be expanded. Awareness be created in this respect and logistics be developed as cushion to achieve the above objective.Differentiated products be developed. Some Islamic Banks have taken correct initiative in this respect. This areas needs to be logistically well cushioned.
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