AL-HUDA CENTRE OF ISLAMIC BANKING & ECONOMICS

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AL-HUDA CENTRE OF ISLAMIC BANKING & ECONOMICS Topic for Presentation Islamic Banking In Pakistan - Review and Progress Presentation by Prof. Dr. Khawaja Amjad Saeed Professor Emeritus & Founder Principal, Hailey College of Banking & Finance, University of the Punjab, Lahore Pakistan (2003----), Member Governing Council, International Federation of Accountants (IFAC), New York (1997-2000), President, South Asian Federation of Accountants (SAFA) (1997), President, Institute of Cost and Management Accountants of Pakistan (1997-2000), President, Association of Management Development Institutions of South Asia (AMDISA) (1993-96), Pro Vice-Chancellor University of the Punjab, Lahore (1994-1996), Founder Director, Institute of Business Administration (IBA), University of the Punjab, Lahore (1973-1996). Date & Venue November 02, 2010, Expo Centre, Lahore. Event The 4 th International Conference & Exhibition on Islamic Banking & Takaful 2010 1

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Event. The 4 th International Conference & Exhibition on Islamic Banking & Takaful 2010. AL-HUDA CENTRE OF ISLAMIC BANKING & ECONOMICS. Topic for Presentation. Islamic Banking In Pakistan - Review and Progress. Date & Venue. November 02, 2010, Expo Centre, Lahore. Presentation by. - PowerPoint PPT Presentation

Transcript of AL-HUDA CENTRE OF ISLAMIC BANKING & ECONOMICS

Page 1: AL-HUDA CENTRE OF ISLAMIC BANKING & ECONOMICS

AL-HUDA CENTRE OF ISLAMIC BANKING & ECONOMICS

Topic for Presentation Islamic Banking In Pakistan

- Review and Progress

Presentation byProf. Dr. Khawaja Amjad SaeedProfessor Emeritus & Founder Principal, Hailey College of Banking & Finance, University of the Punjab, Lahore Pakistan (2003----), Member Governing Council, International Federation of Accountants (IFAC), New York (1997-2000), President, South Asian Federation of Accountants (SAFA) (1997), President, Institute of Cost and Management Accountants of Pakistan (1997-2000), President, Association of Management Development Institutions of South Asia (AMDISA) (1993-96), Pro Vice-Chancellor University of the Punjab, Lahore (1994-1996), Founder Director, Institute of Business Administration (IBA), University of the Punjab, Lahore (1973-1996).

Date & VenueNovember 02, 2010, Expo Centre, Lahore.

EventThe 4th International Conference & Exhibition on Islamic Banking & Takaful 2010

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PRESENTATION FRAMEA. Islamic Banking-Inretrospect

B. Growth of Islamic Banks

C. IBIs Financing

D. IBIs Investments

E. Selected Performance Indicators: IBIs & Banking Industry

F. Future Outlook

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A: ISLAMIC BANKING - INRETROSPECT

1. Vision and Mission of Islamic Banking Department of SBP

2. Strategy for Islamic Banking in Pakistan

3. Historical Rundown

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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.

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A-2: STRATEGY FOR ISLAMIC BANKING IN PAKISTAN

THREE PRONGED STRATEGY In Pakistan, State Bank of Pakistan has followed three point strategy relating to development of Islamic Banks. These strategies include the following:1.Full fledged banks can be established in Pakistan. 2.Islamic Banks can set up their subsidiaries. 3.Stand-alone Islamic Banking branches opened by conventional banks in Pakistan. Therefore, flexibility exists in respect of starting and expanding Islamic Banks in Pakistan.

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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”.

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A-3: HISTORICAL RUNDOWN

4. 1970s to 21st Century a. 1970: 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. 1990s: 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. 7

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B: GROWTH OF ISLAMIC BANKS

1. Important Indicators2. Growth of Islamic Banks Branches 3. Islamic Banking Branches Network4. Islamic Banking Branches Network5. Full Fledged Islamic Banks 6. Islamic Branches of Conventional Books7. City wise break-up of Islamic Banking Branches 8. Islamic Banks sub-branches 9. Maximum & Minimum braches network at Islamic Banks

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B-1: GROWTH OF ISLAMIC BANKS:Some Important Indicators

December 2003-March 2010

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Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, P.3.

Year Total Assets Deposits Net financing investment(December) Total Rs.b Share of IBIs Rs.b Total Rs.b Share of IBIs Rs.b Total Rs.b Share of IBIs Rs.b

2003 13 1 8 1 10 1

2004 44 2 30 1 30 1

2005 72 2 50 2 48 2

2006 119 3 84 3 73 2

2007 206 4 147 4 138 4

2008 276 5 202 5 186 4

2009 368 6 283 6 226 5

2010 (March)

371 6 289 6 229 5

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B-2: GROWTH OF ISLAMIC BANKS BRANCHES

December 2003-March 2010

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Year (December) Number Base Index Number of Times

2003 17 100 1

2004 48 300 3

2005 70 412 4

2006 150 882 9

2007 289 1,700 17

2008 515 3,029 30

2009 651 3,829 38

2010 (March) 654 3,847 38

Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, P.3.

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B-3: ISLAMIC BANKING BRANCHES NETWORK

As on December 31, 2009

Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, December 2009, P.16.

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Particulars NumberNumber of

Branches %

A: Full Fledged Islamic Banks 6 400 23

B: Islamic Branches of Conventional Banks 13 168 50

C: Sub-Branches 7 81 27

26 649 100

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B-4: ISLAMIC BANKING BRANCHES NETWORK

As on December 31, 2009

Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, December 2009, P.18.

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S. No. Province Number %

1. Punjab 290 45

2. Sindh 218 34

3. Khyber Pakhtoonkhwa 70 10

4. Baluchistan 32 5

5. Federal Capital 31 5

6. Azad Kashmir 07 1

7. Northern Area 1 -

649 100

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B-5: FULL FLEDGED ISLAMIC BANKS As on December 31, 2009

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S. No. Banks Number of Branches %

1. Meezan Bank Ltd 166 41

2. Bankislami Pakistan 70 18

3. Emirates Global Islamic Bank Ltd 58 15

4. Dawood Islamic Bank Ltd 42 10

5. Dubai Islamic Bank Pakistan Ltd 35 9

6. Al Barka Islamic Bank 29 7

400 100

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B-6: ISLAMIC BRANCHES OF CONVENTIONAL BANKS

As on December 31, 2009

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S. No. Banks Number of Branches %

1. Bank Alfalah Ltd 60 36

2. Askari Bank Ltd 29 17

3. The Bank of Khyber 18 10

4. MCB Bank Ltd 11 6

5. Standard Chartered Bank 11 6

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6. National Bank of Pakistan 8 5

7. Bank Al-Habib Ltd 6 4

8. Faysal Bank Ltd 6 4

9. Soneri Bank Ltd 6 4

10. United Bank Ltd 5 3

11. Habib Metropoltian Ltd 4 2

12. The Royal Bank of Scotland 3 2

13. Habib Bank Ltd 1 1

168 100Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, December 2009, P.16.

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B-7: CITY-WISE BREAK-UP OF ISLAMIC BANKING BRANCHES

As on December 31, 2009

Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, December 2009, P.18.

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S. No. Province Number %

1. Punjab 38 47

2. Khyber Pakhtoonkhwa 17 21

3. Sindh 12 15

4. Baluchistan 10 13

5. Azad Kashmir 2 2

6. Federal Capital 1 1

7. Northern Area 1 1

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B-8: ISLAMIC BANKS SUB BRANCHES As on December 31, 2009

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S. No. Banks Number of Branches %

1. Bank Alfalah Ltd 35 44

2. Bankislami Pakistan Ltd 32 40

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3. Dawood Islamic 8 10

4. Askari Bank Ltd 2 2

5. Emirates Global Bank Ltd 2 2

6. Dubai Islamic Bank Ltd 1 1

7. The Bank of Khyber 1 1

81 100

Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, December 2009, P.16

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B-9: MAXIMUM & MINIMUM BRANCHES NET WORK OF ISLAMIC BANKS

AS on December 31, 2009

Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, December 2009, P.18.

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S. No. ProvinceNumber

Maximum Minimum

1. Sindh/Karachi (Five Cities) 180 1

2. Punjab/Lahore (Twelve Cities) 109 1

3. Federal Capital/Islamabad 31 -

4. Khyber/Pakhtoonkhwa (Eight Cities) 28 1

5. Baluchistan/Quetta (Eight Cities 21 1

6. Azad Kashmir/Mirpur AK Muzafarabad 4 3

7. Northern Area/Gilgit 1 -

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C: IBIs FINANCING

1. Sectoral Composition

2. Products

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C-1: IBIs FINANCING: SECTORAL COMPOSITION MARCH 2010

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S. No. Sectors %

1. Textile 20

2. Individuals 20

3. Chemical & Pharma 10

4. Sugar 06

5. Energy Products & Transmissions 04

6. Cement 03

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7. Other Sectors (Including 31% others) 37

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Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, Table 6, P. 5.

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C-2: IBIs FINANCING PRODUCTS (Total Rs. 162b)

MARCH 2010

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S. No. Products %

1. Murabaha 38

2. Diminishing Musharaka 32

3. Ijarah 14

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4. Others (Istisna: Salam, Musharaka, Murahaba) 04

100

Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, Table 5, P. 5.

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C-3: IBIs NPFs TIME SERVICES

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Period NPFs to Financing Net NPFs to Net Financing Provisions to NPFD

% % %

March 2009 4.5 2.3 51

December 2009 6.3 3.1 52

March 2010 7.3 3.8 50

Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, Table 4, P. 5.

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D: IBIs INVESTMENT

1. Composition

2. Types

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D-1: IBIs INVESTMENTS: COMPOSITION

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Particulars Rs. b %

1. Federal Govt Securities 27 37

2. TFCs, Debentures, Bonds & PTCs 25 34

3. Fully Paid up Ordinary Shares 02 03

54 74

4. Others 20 27

74 101

Less: Provision 01 01

Net Investment 73 100

Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, Table 7, P. 6.

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D-2: IBIs INVESTMENTS TYPES

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Particulars Rs. b %

1. Available for Sale 59 81

2. Held to Maturity 12 16

71 97

3. Others 03 04

74 101

Less: Provision 01 01

73 100

Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, Table 7, P. 6.

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E: SELECTED PERFORMANCE INDICATORS IBIs & BANKING INDUSTRY

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1. Capital

2. Assets quality

3. Earnings & Profitability

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E-1: SELECTED PERFORMANCE INDICATORS: IBIs & BANKING INDUSTRY

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S. No. Particulars March, 2010

1. CAPITAL IBIs Industry

(Capital to Total Assts) 11.4 10.3

2. ASSETS QUALITY

NPLs to Financing 7.3 13.1

Net NPLs to Net Financing 3.8 4.2

Provisions to NPEs 50.0 70.9

Net NPAs to total to total Capital 50.0 70.9

Real Estate Financing to total Financing 11.3 2.4

3. EARNINGS & PROFITABILITY

Net Income to total Assets 0.8 1.1

ROE 7.0 10.9

Net Income to Gross Income 81.1 74.0

Net Interest Income to Gross income 18.9 26.0

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S. No. Particulars March, 2010

Trading & Exchange Gains/Losses to Gross Income 7.0 9.0

Operating Expenses to Gross Income 70.2 51.8

Personnel Expenses to Operating Expenses 32.2 37.4

Spread between Financing and Deposit Rates 7.7 6.6

Source: Extracted from: Islamic Banking Bulletin, Karachi: State Bank of Pakistan, March 2010, Table 2, P. 3-4.

E-1: SELECTED PERFORMANCE INDICATORS: IBIs & BANKING INDUSTRY

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F: FUTURE OUTLOOK

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1. Forecasts

2. Challenges

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F-1: FORECASTS

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1. By 2012, total of Islamic Banking industry is forecasted as Rs. 1 trillion.

2. In the next five years, 1200 branches of Islamic Banks are vitalized

3. The hope is that it will be 12% of total banking industry

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F-2: CHALLENGES

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We visualize the following future challenges: A. 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.

B. Islamic Banks must demonstrate growth with profitability. The top management must evolve the process to translate the above challenges.

C. 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.

D. Sharia compliant financial services be expanded. Awareness be created in this respect and logistics be developed as cushion to achieve the above objective.

E. 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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