Moody's expects Pakistan's Islamic banking growth to continue to outpace conventional banking

May 23, 2022: Pakistan’s Islamic banking industry is growing rapidly with a combination of a predominantly Muslim population, still modest financial inclusion, and the commitment of the government and regulators as the key driving forces, says Moody’s Investors Service in a report published today.

“We expect growth in Islamic banking to continue to materially outpace conventional banking, reaching a market share of total assets and deposits of around 30% by end 2026, with net financings market share at around 33%. We estimate average growth over 2021-2026F to range between 25%-28% for total assets and deposits, and over 20% for net financings,” said Constantinos Krypreos, a Moody’s Senior Vice President.
Key messages:

Huge growth over the past decade shows no signs of slowing. Islamic banking assets in Pakistan have grown by an average of 24% per annum over the past decade to PKR5,577 billion (U$31.2 billion), accounting for around 19% of total banking assets, up from 8% in 2011. We expect annual growth of over 25% over the next five years, pushing up the sector’s market share to around 30%.
30%.

A large Muslim population and still modest financial inclusion are key growth drivers. The country’s large population of over 210 million people is predominantly Muslim. Moreover financial inclusion in the country is still modest, despite recent progress; according to the State Bank of Pakistan (SBP) approximately 62% of the country’s adult population have an account with a formal financial institution, against an average of 95% in high-income countries. The combination of these factors provides the bedrock for the industry’s development. Past studies have also identified an overwhelming demand for Islamic banking products, with religious considerations an integral part of the decision process.

The government and central bank are taking active measures to support the industry’s growth. The SBP's five-year Strategic Plan for the Islamic banking industry set out targets and identifies six areas of focus that will enable the industry to achieve them. The regulator is also supporting the gradual adoption of AAOIFI1 Shariah accounting standards, enhancing liquidity management tools, undertaking numerous awareness and capacity building programmes and has issued instructions to improve Shariah noncompliance risk management.

Moody's