UBL to Transform KP and Balochistan Regions into Islamic Banking

UBL to Transform KP and Balochistan Regions into Islamic Banking

Karachi, October 31, 2024 – United Bank Limited (UBL) has unveiled ambitious plans to transition the entire Khyber Pakhtunkhwa (KP) and Balochistan regions to Islamic banking. This strategic move was announced during a corporate briefing organized by Topline Securities, featuring insights from UBL President Muhammad Jawaid Iqbal.

With a firm commitment to Islamic banking, UBL anticipates securing approval from the State Bank of Pakistan (SBP) by November for this transformative initiative. The bank has already achieved the gross Average Deposit Ratio (ADR) requirement of 50% by extending over Rs 200 billion in loans to the Pakistan Agricultural Storage and Services Corporation (PASSCO), a strategy that has effectively reduced high-cost deposits and bolstered private lending. Notably, UBL has not incurred any additional tax liabilities due to its ADR performance during the first nine months of 2024.

Looking ahead, UBL aims to meet next year’s ADR targets by implementing two key strategies: trimming expensive corporate savings deposits—which the President emphasized are not mandated for acceptance by banks—and increasing overall lending activities. Furthermore, Iqbal indicated that the banking sector is likely to engage in litigation, as there is widespread sentiment that the ADR tax structure is inequitable.

As of September 2024, UBL’s borrowing through Open Market Operations (OMO) reached Rs 4.16 trillion, with the total Treasury Bills (T-Bills) portfolio valued at Rs 3.268 trillion, yielding 20.51%. Out of this portfolio, Rs 2.628 trillion in T-Bills is set to mature by December 31, 2024, and Rs 525 billion by April 30, 2025, amounting to a total of Rs 3.153 trillion in maturities by that date. Consequently, OMOs will be adjusted based on T-Bill amounts until the bank undertakes new investments. Notably, UBL’s OMO borrowing has decreased by nearly Rs 1 trillion this month.

UBL’s total investment portfolio stands at Rs 5.986 trillion, yielding 19.73%. Within this portfolio, 55% is allocated to T-Bills, 26% to floating bonds yielding 20.91%, and 19% to fixed bonds with a duration of 2.03 years, yielding 15.92%. The bank is poised to benefit from an unrealized gain, net of tax, valued at Rs 52 billion (approximately Rs 43 per share), projected to enhance financial performance in 2025.

In terms of market positioning, UBL has significantly strengthened its current account holdings, which surged by 58% over the past 18 months, rising from Rs 876 billion in December 2022 to Rs 1,387 billion in June 2024, outpacing industry growth of 38% in the same timeframe. The bank anticipates a 15–16% growth in domestic industry current accounts and is focused on increasing its market share in the upcoming year.

Moreover, UBL’s Gulf Cooperation Council (GCC) current accounts have exhibited remarkable growth of 95%, increasing from US$610 million in December 2022 to US$1,188 million in September 2024. The SBP’s concession to UBL regarding the leverage ratio will conclude on January 1, 2025; however, the bank is expected to achieve the targeted 3% ratio this quarter, thanks to robust profitability and maturing T-Bill holdings.

Lastly, discussions regarding a potential merger with Silk Bank are ongoing with the State Bank, with further details anticipated to be disclosed to the public in due course. The President anticipates a reduction in the policy rate to 12%, suggesting a forthcoming pause from the SBP.