(Corrects to remove size of lender in 10th paragraph of story published on Dec. 20.)
Dec. 20 (Bloomberg) -- BankIslami Pakistan Ltd., the nation’s second-biggest Islamic bank, is targeting a 50 percent profit increase next year as it doubles its branches to meet demand for Shariah-compliant services.
BankIslami will expand its network of outlets to about 200 in as many as 90 locations by the end of 2013, Chief Executive Officer Hasan Aziz Bilgrami said in an interview. The lender as of December last year operated 102 branches in 49 cities.
Pakistan’s central bank aims to almost double Islamic banking to 15 percent of the industry’s assets by 2017 after exempting Shariah lenders from paying the minimum rate of return on deposits last month. Banks in the world’s second-most populous Muslim nation face tighter loan margins after the government cut interest rates to a five-year low to stimulate an economy battered by blackouts and war on its Afghan border.
“If the economy is not doing well you need to be big to sustain the peaks and troughs,” Bilgrami, 49, said in Karachi yesterday. “In a country this size, you need 300 to 500 branches to be viable. Islamic banking has so much potential.”
BankIslami net income rose nine-fold to a record 405.9 million rupees in last year, compared with 41 million rupees a year earlier, according to data compiled by Bloomberg.
Islamic financial assets in Pakistan were valued at more than 711 billion rupees ($1.8 billion) at the end of June and accounted for 8 percent of total banking assets, according to the central bank. Pakistan, which has a population of more than 196 million people, is the second-most populous Islamic nation after Indonesia.
BankIslami shares rose as much as 1.6 percent to 9.30 rupees at 11:57 a.m. local time. They have almost tripled this year, beating the benchmark KSE 100 index’s 52 percent gain.
Islamic institutions typically employ panels of scholars who pass rulings, or fatwas, to determine whether products comply with Shariah principles. Panel members are experts on the Koran, commercial law and finance, as Shariah law bans investments in businesses involving, tobacco, alcohol, pork, prostitution and entertainment establishments deemed unethical. Islamic law also bans the payment and receipt of interest.
“Islamic banks are at a relatively higher growth trajectory than commercial banks because it was an untapped market and awareness was low,” said Umer Pervez, research head at Shajar Capital Pakistan (Pvt.) Ltd. in Karachi.
Dubai Bank PJSC, a unit of Emirates NBD PJSC, owns 25 percent of BankIslami.
The State Bank of Pakistan last week reduced the country’s discount rate by 50 basis points to 9.5 percent adding to 2 percentage points of easing since August.
Rate reductions that started last year and raising minimum deposit payouts are likely to take a toll on Pakistani bank profits this year, Faizan Mitha, Deutsche Bank’s managing director said in Oct. 16. The central bank increased the minimum rate that non-Islamic lenders must pay on savings deposits to 6 percent from 5 percent in May.
Pakistan’s economy will probably expand 3.5 percent in the 12 months through June, the International Monetary Fund forecast Nov. 29, less than the 4.3 percent predicted by the government.
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