Al Baraka Islamic Bank Pakistan (AIBP), the branch operations of Al Baraka Islamic Bank (AIB) Bahrain, a subsidiary of Al Baraka Banking Group (ABG) Bahrain, and Emirates Global Islamic Bank (Pakistan) have successfully merged their operations under the name of Al Baraka Bank (Pakistan) (ABPL).
ABPL has assets in excess of PKR50 billion (US$576 million), a workforce of 1400 professionals and a network of 89 branches in 36 cities and towns across Pakistan. ABPL commenced operations on the 29th October 2010. The merger is the first in the Islamic banking sector in Pakistan.
Substantial capital resources, combined with a nationwide branch network will enable ABPL to provide a full range of Islamic banking services, supported by the experience and expertise of its parent company, ABG.
The operations of AIBP date back to 1991, and at the time of merging its operations, it had 29 branches across Pakistan, an asset base of PKR31 billion (US$357 million) and profit before tax of PKR168 million (US$1.9 million).
Emirates Global Islamic Bank began its operations in Pakistan in 2007 with principal shareholders being Emirates Investment Group (through Emirates Financial Holding Company) and Al Rajhi Investment Group (through Mal Al Khaleej Investment Company).
During the merger, EGIB had a 60 branch network located in 31 cities and towns throughout the country. The total number of branches of Al Baraka Banking Group, including Pakistan, will exceed 360 branches.
Profits of Islamic banks in Pakistan
The profits of the Islamic banking industry increased to over PKR5 billion
(US$57.6 million) in the second quarter (April until June 2011), a nine-year record, owing to shift in the investment pattern towards government paper, according to a report by the central bank, State Bank of Pakistan (SBP).
The profit of the industry grew by 194% to PKR5 billion (US$57.6 million) from PKR1.7 billion (US$19.6 million) during the corresponding quarter last year.
Islamic banks were the main contributors to this phenomenal growth in profits, though their Islamic banking divisions of conventional banks also witnessed more than 100% increase in their profits, said SBP.
The report stated: “This record profit can be linked to a structural shift in assets of Islamic banks with a rising share of investments, which produces higher returns due to availability of higher yielding government of Pakistan Sukuk Ijarah.
This is also indicated by a rising financing rate spread of 8.8% in this quarter against 8.4% in the last quarter. This financing rate spread is significantly higher than the industry average of 6.9%.”
The report also stated that the Islamic banking industry grew by 13% during the quarter with assets stood at PKR560 billion (US$6.5 billion), constituting more than 7% share of the overall banking industry’s assets.
In terms of deposits, the industry share of Islamic banking institutions increased from 7.3% to 7.6% during the quarter under review.
Significant positive developments of the quarter were record profit of the industry, a drop in non-performing financing (NPF) and improved leveraging of the capital base.
The return-on-assets and return-on-equities of the Islamic banking industry at 1.6% and 16.5% for the first time surpassed the overall banking system averages of 1.4% and 14.4%, respectively.
Regarding the future investment by the Islamic banking industry, the SBP emphasized the need to develop diversified investment avenues for efficient liquidity management of Islamic banks.
“The next few quarters may, however, witness some slowdown as the identification of new assets, their valuation and documentation may take some time before the government could announce the issuance of further Sukuk,” said the central bank.
With the issuance of a Sukuk worth PKR45 billion ( US$518.1 million) during the quarter, all the six tranches of the government of Pakistan’s Sukuk Ijarah based on the Jinnah Terminal Karachi (the underlying asset) were completed, whereby, the government raised more than PKR190 billion (US$2.2 billion)from Islamic banks during the last nine months.
The asset quality indicator of the Islamic banking industry depicted a positive trend during the quarter under review.
The NPF to financing ratio and net infection ratio (net NPF to net financing) declined to 7.5% and 3.2%, respectively, from 8% and 3.4%. Both these ratios were below the overall industry average of 15.3 % and 5.5%, respectively.
On the liability side, during the quarter, the deposits of the industry reached PKR 452 billion (US$5.2 billion) from PKR398 billion (US$4.6 billion) in the last quarter (March 2011), showing a significant growth of 14%.
The deposits of financial institutions grew by 27%, which is twice the growth rate (12.8%) recorded in customers’ deposits.
Bilal Rasul is the director (enforcement) at Securities and Exchange Commission of Pakistan and he can be contacted at [email protected].