The Bank of Khyber (BoK) has officially announced its transition into a full-fledged Islamic bank, marking a significant shift in its business model. The bank shared the news with the Pakistan Stock Exchange (PSX) on Thursday, signaling a strategic move toward embracing Shariah-compliant financial solutions.
In a statement, the bank confirmed that it had initiated the process of converting from its conventional banking operations to an Islamic banking structure. This transformation aligns with the broader trend in Pakistan, where Islamic banking has seen a surge in popularity in recent years. As Islamic finance continues to grow, both full-fledged Islamic banks and conventional banks offering Islamic banking windows are increasingly meeting the demand for ethical and Shariah-compliant financial products.
The move by BoK comes at a time when Islamic banking in Pakistan is experiencing substantial growth. Over the past two decades, Islamic finance has flourished, fueled by strong customer demand and supportive regulatory policies. The shift has resulted in significant expansion in the number of Islamic banking institutions and the assets under their management.
According to the latest data from the State Bank of Pakistan (SBP), the assets of the Islamic banking industry saw an increase of Rs192 billion from the quarter ending June 2024, reaching a total of Rs9,881 billion by September 2024. This growth in assets was accompanied by a rise in deposits, which surged by Rs233 billion to reach Rs7,596 billion during the same period. The Islamic banking sector experienced year-on-year growth rates of 17.4% in assets and 23.3% in deposits, reflecting its increasing penetration into the broader banking market.
The Islamic banking industry’s share in Pakistan’s overall banking sector has also been growing. At the end of September 2024, Islamic banking assets accounted for 19% of the total banking assets, while Islamic banking deposits reached 23.2% of the total banking deposits. This represents a slight increase from the previous quarter, indicating a sustained upward trajectory for the sector.
In terms of financial performance, the Bank of Khyber has demonstrated positive growth. For the nine months ending September 2024, the bank reported a profit after tax of Rs2.6 billion, which is slightly higher than the Rs2.5 billion profit reported in the same period last year. This solid performance highlights the bank’s strong operational foundations as it embarks on its transition to a Shariah-compliant business model.
BoK’s transition to Islamic banking reflects a larger industry trend where financial institutions are adapting to the growing demand for ethical, interest-free banking products. This shift is not only aimed at diversifying the bank’s offerings but also at tapping into a rapidly expanding market segment that is increasingly seeking Shariah-compliant financial services.
The bank’s conversion to a full-fledged Islamic bank is expected to further enhance its ability to cater to a wider customer base, including individuals and businesses looking for Islamic financial products. The transition also positions BoK to compete in a market that is becoming increasingly competitive, with other conventional banks offering Islamic banking services and new entrants specializing in Islamic finance.
With the continued growth of Islamic banking in Pakistan and the increasing adoption of Shariah-compliant financial products, the Bank of Khyber’s move to full Islamic banking operations is likely to strengthen its position in the market. The bank’s focus on offering a diverse range of ethical financial solutions will likely be key in meeting the needs of both retail and corporate clients looking for alternatives to conventional banking products.
This transition is also expected to play a role in further promoting the adoption of Islamic finance in Pakistan, which remains one of the largest and fastest-growing Islamic banking markets in the world. The move is not just a business strategy for BoK but also part of the larger transformation of the Pakistani financial sector toward a more inclusive and diversified banking environment.