Karachi: Karachi-based Faysal Bank (FBL) will convert itself into a full-fledged Islamic lender as its majority shareholder, Bahrain’s Ithmaar Bank, looks to consolidate its business lines.
Islamic retail bank Ithmaar, with a 67 percent stake in FBL, wants to extract up to $35m in savings from a turnaround plan after posting a net loss of BD29.9m ($79.3m) last year, against a loss of BD10.1m in 2012.
As of December, FBL had Pakistan’s second-largest Islamic banking window with 53 stand-alone branches. Its conversion would make its remaining 216 branches Islamic, subject to shareholder and regulatory approvals.
“FBL is in discussion with the State Bank of Pakistan on the conversion of the entire operations of FBL to sharia-compliant banking,” Ithmaar’s chief executive Ahmed Abdul Rahim said. “At this stage, the exact timeline for the conversion cannot be ascertained, but it is expected to take between two to three years.”
Ithmaar will increase its control of FBL by adding two more members to its board, reaching a total of five members out of eight, including its president and chief executive. Ithmaar’s shareholding in FBL will remain unchanged, Rahim added. Last year, Ithmaar completed a merger with affiliate First Leasing Bank through a share swap agreement. In 2010, Ithmaar integrated its subsidiary Shamil Bank, while FBL acquired the Pakistani operations of Royal Bank of Scotland.
FBL’s conversion is the latest in a string of corporate actions that may boost the Islamic banking sector in Pakistan, the world’s second most populous Muslim nation.
Regulators hope the branch network of Islamic banks, which now comprises about 1,200 branches, will double while the industry’s market share will rise to 15 percent of the banking system by 2018 from roughly 10 percent now.
FBL would help the industry hit those targets: it held total deposits of Rs271.1bn ($2.8bn) as of December, 9.8 percent of which where Islamic deposits.
That compares to Rs868bn in deposits held by Pakistan’s Islamic banks as of December, representing 12.1 percent of the entire banking sector, central bank data showed.
Last year, Pakistan’s Summit Bank said it would convert itself into a full-fledged Islamic bank over a three- to five-year period.
Ithmaar now holds a legacy portfolio of seven conventional assets after it underwent a conversion of its own in 2010, from a conventional investment bank into a retail Islamic bank.
Since 2010, it has resolved issues pertaining to 14 conventional assets, with its sharia board granting it a grace period to divest holdings or make them Shariah-compliant.Reuters
