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Moody's: Pakistani banks to benefit from increased Islamic banking penetration

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Moody's: Pakistani banks to benefit from increased Islamic banking penetration

Increased Islamic banking penetration is credit positive for Pakistani banks as it will support their profitability, Moody's said in a Sept. 19 credit outlook report.

The State Bank of Pakistan showed in a recent report that Shariah-compliant assets increased 21% during the fiscal year ended June to reach a market share of 14.4% of the total system assets. The central bank aims to push this further to make Islamic assets account for 20% of the market through structural and regulatory reforms. In addition, the government is supporting the sector through regular Islamic bond issuances.

Moody's said banks are set to benefit from Shariah-compliant products as they attract previously unbanked customers and create opportunities for banks to grow their deposit base. In addition, deposit products that comply with Shariah law do not earn interest, resulting in lower expenses and generating higher margins and profitability for banks.