KARACHI: Pakistan Islamic banks are stick to Karachi Interbank Offered Rate (KIBOR) – an interest based benchmark.
(more…)Tag: Islamic banks
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SBP adopts Sharia standards of accounting, auditing
KARACHI: State Bank of Pakistan (SBP) on Monday said it has adopted Sharia standards of accounting and auditing for Islamic banks in the country.
In a statement, the central bank said strengthening Shariah compliance of Islamic banking industry in line with the best international practices is one of the key pillars of SBP’s 3rd Strategic Plan for Islamic Banking Industry 2021-25.
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Under the plan, SBP has been adopting Shariah standards of Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) in a systematic and gradual manner.
The standardization and harmonization in Shariah practices and procedures are helping in elevating the local Islamic banking industry at par with the international best practices.
After a comprehensive process of evaluation and deliberations with the internal and external stakeholders, keeping in view our local environment, today the State Bank of Pakistan (SBP) has adopted four more AAOIFI Shariah standards on: i) Salam and Parallel Salam, ii) Istisna’a and Parallel Istisna’a, iii) Combination of Contracts and iv) Irrigation Partnership (Musaqat), with certain clarifications and amendments.
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Salam is a mode of finance frequently used in agriculture while Istisna’a is a mode generally used by Islamic banking institutions to provide financing where manufacturing/assembling/processing is involved. Irrigation partnership (Musaqat) standard can be used in agriculture sector, especially for orchard financing while standard on combination of contract provides guidance to Islamic banking institutions when making use of multiple contracts in their various arrangements to meet the needs of the customers. It may be noted that earlier SBP has already issued detailed general guidelines on Islamic financing for agriculture sector.
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With adoption of these four standards, the total number of AAOIFI Shariah standards adopted by SBP has reached twenty while work on remaining standards is underway. Besides, there are few AAOIFI standards which have already been adopted by SBP as part of its various regulations, instructions and guidelines issued from time to time.
AAOIFI is a leading international organization primarily responsible for development and issuance of standards for the global Islamic finance industry. SBP has remained a key member of AAOIFI’s Board of Trustees.
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Assets of Islamic banks surge by 30.6%: State Bank
KARACHI: The assets of Shariah compliant banks in Pakistan have increased by 30.6 per cent to Rs4.39 trillion by end of quarter January – March 2021 as compared with Rs3.36 trillion in the same quarter of the last year, State Bank of Pakistan (SBP) said on Friday.
The assets base industry share of Islamic banking increased to 17 per cent in March 2021 as compared with 15.2 per cent in the same month of the last year.
The deposits of the Islamic banks also registered a growth of 28.4 per cent to Rs3.45 trillion by the quarter January – March 2021 as compared with Rs2.69 trillion in the same quarter of the last year.
The share of the Islamic banks in overall deposits of the industry rose to 18.7 per cent in March 2021 as compared with 16.9 per cent in March 2020.
The composition of Islamic banking industry remained same with 22 Islamic Banking Institutions (IBIs) comprising of 5 full-fledged Islamic Banks (IBs) and 17 Conventional Banks having standalone Islamic Banking Branches (IBBs) by end March, 2021.
During the period under review, 48 branches were added in branch network of IBI; as a result, the branch network of IBI increased to 3,504 branches (spread across 124 districts of the country) by end March, 2021.
The number of Islamic banking windows (dedicated counters at conventional branches) operated by IBBs stood at 1,595 by end March, 2021, the SBP said.
Investments (net) of IBI registered an increase of Rs 84 billion during the period under review and stood at Rs 1,345 billion by end March, 2021. This increase in investments (net) can be mainly attributed to investments made by IBI in Government of Pakistan (GoP) domestic Ijarah Sukuk. It is worth mentioning here that GoP issued two domestic Ijarah Sukuk of Rs 75 billion (approximately) during the period under review.
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Deposits of Islamic banks grow by 28pc to Rs3.39 trillion
KARACHI: Deposits of Islamic banking institutions have increased by 28 percent to Rs3.39 trillion for the year ended December 31, 2020, the State Bank of Pakistan (SBP) said on Wednesday.
The deposits of the Islamic banks were at Rs2.65 trillion by year ended December 31, 2019.
The market share of Islamic banks in overall banking industry has increased to 18.3 percent by year ended December 31, 2020 as compared with 16.6 percent in the preceding year.
Assets of the Islamic banks also surged by 30 percent to Rs4.27 trillion for the year ended December 31, 2020 as compared with Rs3.28 trillion in the preceding year. Whereas the share of Islamic banks in terms of assets increased to 17 percent by year December 31, 2020 as compared with 14.9 percent a year ago.
The SBP said that during the quarter under review (October-December 2020), the asset base of Islamic Banking Industry (IBI) grew by 12.1 percent (Rs. 461 billion) and reached Rs4,269 billion.
Similarly, the deposits of Islamic banking industry depicted a quarterly growth of 11.7 percent (Rs. 355 billion) and were recorded at Rs. 3,389 billion.
‘Assets’ of IBI witnessed YoY growth of 30 percent, which is the highest growth in asset base since December 2012, whereas ‘deposits’ also registered YoY growth of 27.8 percent, the highest growth since December 2015.
The growth witnessed in the Islamic banking industry shows a promising transition to the new decade even amidst COVID-19 pandemic.
In terms of market share, IBI achieved a significant mark of 17.0 percent and 18.3 percent in assets and deposits respectively, of overall banking industry by end December 2020. Moreover, profit before tax of IBI stood at Rs. 88.4 billion at the end of the December 2020.
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SBP revises instructions for IBWs of conventional banks
KARACHI: State Bank of Pakistan (SBP) on Wednesday revised instructions for Islamic Banking Windows (IBWs) of conventional banks in order to enhance the share and outreach of Sharia compliant financial services.
In a statement the central bank said that keeping in view the significant potential of Islamic Banking Windows (IBWs) in enhancing the share and outreach of Shariah compliant financial services and increase in financial inclusion, instructions have been revised for banks to expand the scope of operations of IBWs.
IBWs can now offer all types of financing products to their customers including Corporates, SMEs, Agriculture, Housing, and Consumers. However, this facility is subject to the condition that respective IBW branch shall be converted into full-fledged Islamic banking branch within a period of three years.
At present, Islamic banking products and services are being offered by full-fledged Islamic banks, Islamic banking subsidiaries and Islamic banking branches of conventional banks after getting approval/license from SBP. Conventional banks can open IBWs, which are dedicated counters in conventional branches, after getting permission from SBP; however, these were not allowed to offer any financing products.
With 1,400 IBWs of 11 banks currently operational in the country, their potential to improve access to finance will increase significantly.
Further, it will contribute towards increase in financial inclusion through provision of Shariah compliant financing facilities to vast majority of population.
The revised instructions also incorporate different amendments or additions to existing regulations and include policy formulation on IBWs, submission of annual IBWs expansion plan, physical setup & display requirements for IBWs, opening & closure of IBWs, their fee structure, and revisions in reporting requirements.
These revised instructions will supersede all previous instructions issued on IBWs by SBP from time to time.
It is expected that this new policy measure will contribute towards achieving the targets set under National Financial Inclusion Strategy for Islamic banking, which envisages attaining a share of 25 percent percent in total assets and deposits of the banking industry and 30 percent share in total branch network of the industry by the end of 2023.
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Deposits of Islamic banks grow by 18.8 percent to Rs2,415 billion
KARACHI: Deposits of Islamic banking system has increased by 18.8 percent to Rs2,415 billion by end-June 2019 as compared with Rs2,033 billion a year ago, State Bank of Pakistan (SBP) said on Friday.
The SBP in its Islamic Banking Bulletin said that the market share of Islamic banking systems in terms of deposits in overall banking industry increased to 15.9 percent by June 2019 as compared with 14.8 percent a year ago.
The net assets of Islamic banks registered 20.6 percent growth to Rs2,992 billion by June 2019 as compared with Rs2,482 billion by June 2018. The market share of Islamic banks in terms of assets in overall banking industry grew by 14.4 percent by June 2019 as compared with 12.9 percent in June 2018.
Number of banks by June 2019 increased to 22 as compared 21 a year ago. However, number of Islamic banking branches increased to 2,913 from 2,685 as of June 2018.
The SBP said that the network of Islamic banking industry consisted of 22 Islamic banking institutions; 5 full-fledged Islamic banks (IBs) and 17 conventional banks having standalone Islamic banking branches (IBBs) by end June, 2019.
Branch network of Islamic banking industry was recorded at 2,913 (spread across 113 districts) by end June, 2019. More than 77 percent of the branches were concentrated in Punjab and Sindh.
The number of Islamic banking windows operated by conventional banks having standalone Islamic banking branches stood at 1,348.
Investments (net) of Islamic banking industry were recorded at Rs. 606 billion by end June, 2019 compared to Rs. 617 billion in the previous quarter.
During the period under review, investments (net) of both IBs and IBBs witnessed slight attrition of 0.8 percent and 3.3 percent, respectively. This can be mainly attributed to non-issuance of sovereign sukuk during the period.
Profit before tax of Islamic banking industry was recorded at Rs. 32 billion by end June, 2019 compared to Rs. 15 billion in the same quarter last year.
Profitability ratios like return on assets (ROA) and return on equity (ROE) before tax were recorded at 2.3 percent and 35.3 percent, respectively by end June, 2019.
During the period under review, operating expense to gross income ratio witnessed further improvement and was recorded at 52.6 percent, compared to 54.7 percent in the previous quarter.
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New tax legislation sought for Islamic banking
KARACHI: Federal Board of Revenue (FBR) has been suggested to draft new legislation for taxation of Islamic banking.
It is proposed that the audited financial statements of Islamic banks as well as those of Islamic Banking branches/windows operations of conventional banks provided separately in the audited financial statements of conventional banks submitted to the State Bank of Pakistan should be taken as basis of calculation for income tax.
Overseas Investors Chamber of Commerce and Industry (OICCI) in tax proposals of budget 2019/2020 highlighted:
Rule 3: Treatment for Shariah compliant banking—
— Any special treatment for “Shariah Compliant Banking” approved by the State Bank of Pakistan shall not be provided for any reduction or addition to income and tax liability for the said “Shariah Compliant Banking” as computed in the manner laid down in this schedule.
— A statement, certified by the auditors of the bank, shall be attached to the return of income to disclose the comparative position of transaction as per Islamic mode of financing and as per normal accounting principles. Adjustment to the income of the company on this account shall be made according to the accounting income for purpose of this schedule.
It is recommended that new legislation to be drafted to provide neutrality in the light of below:
— The audited financial statements of Islamic Banks as well as those of Islamic banking operations of conventional banks provided separately in the audited financial statements of conventional banks and submitted to the State Bank of Pakistan shall form the basis for the calculation of income tax liability as provided in this Schedule.
The OICCI said that the objective of Rule 3 of 7th Schedule was to provide tax neutral treatment to IBIs, however, it is difficult to meet the condition of Sub-Rule (2) of Rule 3, keeping in view the diversified nature of Islamic banking transactions and equating each transaction to a conventional equivalence and then getting it certified by the auditor which is time consuming and costly for Islamic Banking Institutions. Moreover, it does not give space for differentiated transactions as each transaction from Income Tax purpose has to be equated with a conventional transaction.
It is thus proposed that the audited financial statements of Islamic Banks as well as those of Islamic Banking branches/windows operations of conventional banks provided separately in the audited financial statements of conventional banks submitted to the State Bank of Pakistan should be taken as basis of calculation for income tax with additions and deductions as provided in the Seventh Schedule to the Income Tax Ordinance, 2001 which is applicable to the entire banking industry in Pakistan.