As banks around the world shut branches and lay off tellers, Pakistan’s Faysal Bank is headed in the opposite direction in the hope that a drive into Islamic financial services will boost deposits and shareholder returns.
The Karachi-based lender plans to open 200 new branches offering Shariah-compliant deposit accounts in the next two years, and convert 40 regular branches to Islamic outlets this year, according to Chief Executive Officer Yousaf Hussain. By the end of the program more than three quarters of the network will be Islamic, one of the most effective ways to attract new deposits in Pakistan, Hussain said in a recent interview.
“Branches are still relevant. Lots of people feel comfort with having a branch close to them,” Hussain said. “There is space in the Islamic banking market, clearly.’’
Faysal Bank wants to tap into the rapid growth in Shariah-compliant deposits in a country where three-quarters of the population doesn’t have a bank account, and many of the unbanked shun regular commercial banks because of Islam’s prohibition on interest payments. They often want the assurance of a physical branch outlet to trust the bank with their money, instead of keeping it at home or using informal savings networks.
That’s a contrast to the situation in the developed world, where banks are shuttering branches and laying off front-line staff as they seek to save costs and adapt to the changes brought by financial technology. Former Citigroup Inc. head Vikram Pandit has predicted that developments in technology could result in 30 percent of banking jobs disappearing in coming years.
In Pakistan, Shariah-compliant deposits have grown at double the pace of conventional deposits over the past two years, according to research by Karachi-based Optimus Capital Management. Only about 20 percent of Pakistan’s 14,000 bank branches are Shariah-compliant, accounting for about 15 percent of total deposits of roughly 14 trillion rupees ($99 billion).
Faysal Bank’s program of branch openings and conversions will give it a total of close to 390 Islamic outlets this year, which would be the second-largest network in the country after Meezan Bank Ltd., a specialist Islamic lender.
Majority owned by Bahrain’s Ithmaar Bank, Faysal Bank expects the extra deposits it will gain from its branch opening program should allow it to double net income to about 10 billion rupees over the coming five years, according to Hussain, from the 4.9 billion rupees reported for 2018. The cost of opening Islamic branches is relatively low compared with traditional outlets, thereby boosting profits, Hussain said.
The bottom line will also be helped by the bank’s plan to make the majority of its assets Shariah-compliant, including through the launch of the nation’s first Islamic credit card later in 2018, Hussain said. At the moment, about 20 percent of the bank’s total assets of 600 billion rupees are Islamic, but that ratio should rise to as high as 85 percent over three years, he added.