Here’s What Happened in Pakistan’s Banking Sector in 2023

The banking sector in Pakistan maintained robust growth in profitability during 2023, including growth in assets and deposits, the high-interest rate regime allowed them to make handsome margins, increase investment in securities, and lend cash to the federal government at exorbitant financing rates.

On the other hand, they attracted deposits from customers, providing them with handsome returns too. There have also been major transformations and developments in a few commercial banks, which will impact the banking sector positively in the long term.

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Some of the initiatives taken by different commercial banks will be followed by other competing banks in the near future. Below are a few major developments that happened during 2023:

(1) Faysal Bank’s Conversion to Islamic Bank

Faysal Bank announced its conversion to a full-fledged Islamic bank on the first day of the calendar year. The bank converted its assets, deposits, operations, branches, and licenses from conventional to Sharia-based banks and became the second-biggest Islamic bank in the banking industry.

This transition is said to be the biggest conversion of any conventional bank, not only in Pakistan but in the world, considering the size of the operation. The transformation of Faysal Bank also provided a roadmap for other banks seeking to convert their operations from conventional to Islamic.

(2) MCB Bank Acquires 81% Stake in Asset Management Company

MCB Bank acquired an additional 30 percent stake in its subsidiary, MCBAH Savings and Investments, at the cost of Rs. 649 million. Through this deal, the bank received 21.6 million shares, or 30 percent, of another sponsor, Arif Habib Corporation, at a share price of Rs. 30. Hence, its overall shareholding in the subsidiary increased to over 81 percent from 51 percent.

MCB-AH Limited 

is one of the leading asset management companies in the fund management sector, and a few companies within a sector are also listed on the Pakistan Stock Exchange (PSX). The transition in shareholding will strengthen the position of the bank in the financial sector.

(3) JS Bank Acquires Major Shareholding in BankIslami

JS Bank Acquired major shares in BankIslami to convert the Islamic bank into its subsidiary with ownership of the significant shareholding. The bank increased its stakes in the Islamic bank by 75 percent by purchasing shares from the parent financial entity, JS Group.

The share swap deal was successful between the sponsors of the Islamic bank, despite being challenged in the Sindh High Court. JS Bank maintained a different strategic position, which will increase its profitability and influence in the banking industry after this deal.

(4) Prominent Banks Plan for Conversion to Islamic Banking

Prominent conventional banks with a separate division of Islamic banking announced their plans for full-fledged conversion to Islamic Banking in light of a verdict issued by the Federal Shariat Court last year.

The banks included the Bank of Punjab, Zarai Taraqiati Bank, and Summit Bank. In this regard, the Bank of Punjab hired a consultant, and Summit Bank rebranded itself as Mukramah Bank. This transition in banking operations will likely attract different conventional banks to follow the same suit.