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Non-Performing Loans (NPLs) analysis of the Islamic Banks Compiled by Saad Faruqui
Financial year 2012 has witnessed an exponential rise in the Non-Performing Loans (NPL) with the 4th quarter of the year just beginning. NPLs of local private banks surged by Rs 16.35 billion to Rs 394.72 billion. NPLs of DFIs have mounted by Rs 2.15 billion to Rs 18.2 billion in June 2012 from Rs 16.05 billion. During the period under review, NPLs of public sector banks have gone up by Rs 9.79 billion to Rs 196.40 billion. During the first half, NPLs of foreign banks have increased to Rs 7.88 billion from 7.57 billion. The significant rise in the NPLs reveals that the challenges for the banking industry are far from Ayat of month: O you who believe, why do you say what you do not do? It is severely hateful in Allahs sight that you say what you do not do. [Surah Al-Saf: 2,3 ]

Financial year 2012 has witnessed an exponential rise in the NPLs with the 4th quarter of the year just beginning.

Inside this issue

Inside Story Editors Message 1 2

Non Performing Loan (provisions) of the industry

Description Soneri Bank Limited Standard Chartered Bank United Bank Limited National Bank of Pakistan Muslim Commercial Bank Habib Metropolitan bank Askari Bank Limited Faysal Bank Habib Bank Limited Bank Al Falah Bank of Khyber Bank Al-Habib Meezan Bank Limited Dubai Islamic Bank Burj Bank Bank Islami Al-Baraka Bank 2011 137,472 185,514 192,874 5,530 73,661 7,379 15,731 112,279 23,046 47,701 1,471,614 10,075 165,374 21,423 229,204 2010 54 196,064 2,476 278,223 49,942 4,043 138,794 6,493 40,193 29,664 37,444 1,330,057 181,224 382,826 7,424 759,301

Figures in Rupees 000

2009 516 218,492 37,736 63,484 172,353 47,204 65,968 1,430,536 115,136 232,089 89,780 309,788

Local and 4 International News Get a glimpse of what is happening in the world of Islamic finance

In the Spotlight Find our read of the month

Ask US By Mufti Ibrahim Essa and Mufti Javed Ahmed

The Islamic finance industry is undoubtedly in the phenomenal expansionary phase, demonstrating more than an average annual growth rate of 30%. This extraordinary growth has not only come with glad tidings for the aggravated Muslims and riba- allergic minds, but it also brought with itself many challenging issues. These issues are not all-new on the spectrum, and even most of them have been reportedly addressed since the inception of this industry. It has been overlooked arguing that they are not strong enough to stand on their own. The IFIs have considerably penetrated into the contemporary realm of economical and financial system of the world. The significant growth of this industry including the formation of related markets, comparatively firm risk management structure and attractive profitably are the sufficient reasons to provide them survival. Thus they cannot be abrogated or annulled if they take some bold steps. Granting the name of Islamic from the Shariah scholars was not for making business on the frontiers of Halal and Haram, where a minor slip in the procedure of transaction can make it non-Islamic. The bounties of Islamic economical system lie beneath the following Shariah injunctions in the way of Ihsaan by opting the ideal solutions in spite of way-outs. Among those issues are lack of equity financing, using interest bearing benchmark, mimicry attitude of IFIs, independence of Shariah supervisory institution, regulatory reforms, lack of competent human resource and developing institutions, global harmony in the formation and adoption of standards and legal documentation. However, IFIs are not stand alone responsible for these issues, as we observe diversified practices of Islamic banking across the globe due to diversification in corporate, consumer and regulatory attitudes in the different parts of the world, especially the materialistic attitude of our corporate industries is weighing more in this regard. It is not possible to address every single issue here, even so, we must realize that we are far away from the top and the ideal and we must climb up. In moving forward, the optimum step should be academic development by infiltrating the theories of Islamic economics into the conventional discipline of economics and commerce from the beginning. Though it is macro and long-run strategy, it will seed and water the real Islamic economics into our future. For now, we need consensus based decisions on intra-industry and regulatory levels. In the conclusion, I would prefer to quote an anonymous, Even if you fall on your face, you're still moving forward. Happy Reading!

Advisory Board
Mufti Irshad Ahmed Aijaz Mufti Najeeb Khan Anwar Ahmed Meenai Mohammad Aslam Mujeeb Baig Syed Shahjahan Salahuddin Faizan Memon

NusratUllah Khan

Associate Editors
Muhammad Shahzad Hussain Arshad Hussain Zubairi Ammar Khalid Rima Farooq

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ContinuedNon-performing loans (NPLs) analysis of the Islamic banks

Banks operating in Pakistan
Public sector banks 05 Specialized Banks 04 Microfinance banks / Private banks Islamic banks Foreign banks institutions 17 05 07 09 Development finance institutions 08

over, new stringent policies will have to be developed and careful monetary measure needs to be taken. However, a fact needs to be highlighted that the reason of these NPLs is also the ever increasing downturn of Pakistans economy which is resulting in difficult

business conditions hence making it hard to repay the financings. The monetary policy 20112012, succeeded in curtailing financing to private sector but it could not control the ever increasing defaults.

An analysis of provision created by Islamic banks and window operations of the conventional banks during the year ended 31 December 2011, have been formed. The analysis is shown below .

Advances Description Soneri Bank Limited Standard Chartered Bank United Bank Limited National Bank of Pakistan Muslim Commercial Bank Habib Metropolitan Bank Askari Bank Limited Faysal Bank Habib Bank Limited Bank Al Falah Bank of Khyber Bank Al-Habib Meezan Bank Limited Dubai Islamic Bank Burj Bank Bank Islami Al-Baraka Bank 2011 1,764,097 14,335,084 521,109 1,754,031 5,611,142 6,446,125 3,036,063 4,974,329 396,172 25,262,319 3,071,604 5,359,450 59,155,585 23,340,602 10,509,340 20,110,401 27,610,708 2010 1,611,508 9,338,716 461,342 1,003,331 3,688,579 5,465,838 3,480,377 3,445,171 396,107 25,957,935 2,949,588 3,976,591 54,195,163 22,764,954 5,616,202 16,670,125 26,599,261 1,558,478 16,920,995 1,953,031 3,081,304 41,709,656 20,589,613 4,763,622 13,282,152 9,439,243 2009 846,427 6,474,212 638,131 510,730 3,477,600 3,684,234 5,872,292 -

Figures in Rupees 000

NPL to advances ratio (%) 2011 7.8% 1.3% 0.0% 11.0% 0.1% 1.1% 0.2% 0.3% 28.3% 0.1% 1.6% 0.0% 2.5% 0.0% 1.6% 0.1% 0.8% 2010 0.0% 2.1% 0.5% 27.7% 1.4% 0.1% 4.0% 0.2% 10.1% 0.1% 1.3% 0.0% 2.5% 0.8% 6.8% 0.0% 2.9% 2009 0.1% 3.4% 0.0% 0.0% 1.1% 0.0% 1.1% 11.1% 0.3% 3.4% 0.0% 3.4% 0.6% 4.9% 0.7% 3.3%

The data presented in this summary is extracted from the published audited financial statements of the respective Banks for the year ended 31 December 2011. The newsletters management does not take any responsibility of authencity of any data presented here and will not assume any liability due to any loss or damage caused by the usage of the information presented here. User discretion advised.
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CBB Sukuk Al-Ijara fully subscribed

The Central Bank of Bahrain (CBB) announces that the monthly issue of the short-term Islamic leasing bonds, Sukuk Al-Ijara, has been fully subscribed by 328%. Subscriptions worth BD65.5 million were received for the BD20 million issue, which carries a maturity of 182 days. The expected return on the issue, which begins on 20 September 2012 and matures on 21 March 2013, is 1.35%. The Sukuk Al-Ijara are issued by the CBB on behalf of the Government of the Kingdom of Bahrain.

Jordan senate approves a number of laws

The Senate approved the draft Islamic Sukuk Law, the Awaqf and Islamic Affairs Law and the Appropriation Law. During the session, chaired by Senate President Taher Masri and attended by Prime Minister Fayez Tarawneh and Cabinet members, the Senate approved the 2012 Islamic Sukuk Law as referred from the Lower House of Parliament.

comes with a high level of capital protection. Developed by the Royal Bank of Scotland (RBS), the Al Islami Aurum+ 1 Dirham Certificate attempts to generate returns in any market environment by taking exposure and switching between oil and gold.

Thomson Reuters launches new global Islamic index to monitor Sukuk market
Thomson Reuters , the world's leading source of intelligent information for businesses and professionals, announced the launch of the Thomson Reuters Global Sukuk Index, an independent and transparent benchmark for investors seeking exposure to Sukuk (Shariah compliant) fixed-income investments, to be used to monitor the performance of the Sukuk market. The announcement of the launch of the index was made at the Global Islamic Finance Forum (GIFF) 2012 in Kuala Lumpur, Malaysia.

DIB launches Al Islami Aurum+ 1Dirham Certificate

Innovative investment product provides strategic exposure to gold and oil markets, backed by high level of capital protection Dubai, September 25, 2012: Dubai Islamic Bank ( DIB ) announced today the launch of its Al Islami Aurum+ 1 Dirham Certificate, an innovative investment product that provides strategic exposure to the commodity markets with the peace of mind that

Shariah-compliant assets to reach $1.6 trillion

Kuwait Finance House Research (KFHR) prepared a series of financial reports that discussed the reality of Islamic banking sector and the horizons of its development during the coming period, in order to discuss that during the Global Islamic Financial Forum that will begin in Malaysia. The four day event that is organized by the Malaysian government and Malaysia's Central Bank, will tackle on its first day a study regarding the status of global Islamic banking sector. The total value of Islamic financial assets is expected to reach $1.6 trillion this year, and the financial sector is expected to continue its robust growth in 2013.

S&P report says greater use of Sukuk in the GCC and Asia could fund infrastructure needs and develop Islamic finance
Several recent landmark corporate and infrastructure Sukuk by companies in the GCC issuing in Malaysian ringgit may signal the start of a trend that could help develop and globalise the market, according to a new report from Standard & Poor's, or S&P. In an era when the world's conventional banks are producing fewer and shorter loans and companies are considering other options for finance, S&P believes that Islamic financial instruments could become a key funding source, especially in GCC and Asian countries, S&P said in a report entitled, "Beyond Borders: The GCC And Asia Could Rev Up Their Economies - And The Islamic Finance Market".

The news included here is on the basis of information obtained from local and international print and electronic media sources. IFP team does not accept any responsibility about their bona-fide.
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QIB's General Assembly approves $1.5 billion Sukuk issuance programme

Q a t a r I s l a m i c B a n k (Q I B ) announced that its General Assembly has approved the Board of Directors' recommendation to establish a medium-term $1.5 Billion Sukuk Programme. The announcement was made following the General Assembly meeting at Four Seasons Hotel, 16th of September 2012. Based on the approval, the Bank will now pursue all necessary regulatory approvals from the relevant authorities.

Marine, plans to launch its new Saudi joint venture which will spearhead its activities in the Kingdom and beyond.

Dubai Islamic Bank unveils Savings account for kids

Dubai Islamic Bank ( DIB ) unveiled its first account developed specifically for children. Created to help children understand financial responsibility from an early age, the Shaatir Savings account includes a number of innovative features that encourage young people to save towards specific goals in the lives.

to grow by at least 40 per cent each year for the next two years. It has achieved an 85 per cent year-on-year growth in its premium business during the first seven months of this year.

First Sukuk issuance for the Turkish Treasury of $1.5 billion

Kuwait Finance House " KFH " represented by its subsidiary, Liquidity Management House "LMH", succeeded in arranging for Ijarah Sukuk for the Turkish Treasury amounting USD1.5bln for 5 years, in cooperation with Citigroup and HSBC, where this is the first issuance of its kind for the Government of Turkey. The issuance witnessed a large turnout exceeded expectations. 250 investors have requested to participate in the issuance totaling $7.1billion (i.e. 5 times oversubscription coverage). The annual rate yield on these sukuk is 2.8% and to be distributed every 6 months.

Bloomberg launches new corporate Sukuk index for Islamic finance

Bloomberg announced further commitment to the Islamic finance market with the launch of a Malaysian Ringgit corporate Sukuk index, developed with the Association of Islamic Banking Institutions Malaysia and Bursa Malaysia. The Bloomberg AIBIM Bursa Malaysia Corporate Sukuk Index will serve as a benchmark for investors of ringgit-denominated Islamic bonds in Malaysia.

Dar Al Takaful eyes 40% growth

Dar Al Takaful , formerly known as Takaful House , is confident to achieve premium targets set for 2012 as it plans to introduce various products to target small and medium enterprises, travel, medical and institutional business to bring profitable volumes. The Islamic insurance firm intends

Islamic banking regulation expected at any time: Central Bank of Oman

The much-awaited regulation for Islamic banks and window operations of conventional banks will be announced through a Royal Decree at any time. "It can come at any time. The Majlis A'Shura and Cabinet have already cleared the new regulation and now we are waiting for a Royal Decree, which can come at any time,- Central Bank of Oman Executive President Hamoud Sangour Al Zadjali, told Times of Oman over phone. It appears that the Royal Decree is for amending certain clauses to incorporate Islamic banking business.

Japanese insurer all set to enter Saudi Takaful market through joint venture
Tokio Marine Middle East Ltd, the Dubai-based regional hub of Japanese insurance giant Tokio

The news included here is on the basis of information obtained from local and international print and electronic media sources. IFP team does not accept any responsibility about their bona-fide.
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Currency Swap Arrangement with Turkey becomes operational

The three-year bilateral Currency Swap Arrangement (CSA) between the State Bank of Pakistan (SBP) and the Central Bank of Republic of Turkey (CBRT) amounting to US$ 1 billion in equivalent local currencies is being implemented and SBP has issued necessary instructions to banks for its implementation after due consultations with various stakeholders and completion of operational formalities with CBRT.

and genuine adherence to religious teachings of these products and services.

KASB Banks future promising Islamic banking industry moving forward in competitive environment
Salman Raza, General Manager Branch Banking of KASB Bank, which is one of the leading banks of the country, has said KASB Bank has evolved an aggressive marketing strategy for the year 2013 under which we have plann ed to further expand our branch network apart from expan ding KASB products.

sending money to families living in Pakistan. DIBPL is now servicing Western Union customers for inward remittances through its branches across Pakistan. Speaking at the occasion Najam emphasised that Inward remittances are extremely crucial for the development of Pakistan's economy because it was a major contributor to the country's foreign exchange reserves. Naveed Malik said that the DIBPL distribution network was consistently growing. The DIBPL network had witnessed significant organic growth in the past few years taking the branches to 91 branches in 33 cities.

Pakistan central bank aims to strengthen Islamic finance sector

Pakistans central bank has announced it will develop rules defining the roles and responsibilities of all those involved in the sharia compliance process of Islamic banks, including scholars. The rules aim to strengthen governance of the Islamic finance sector in the worlds second most populous Muslim nation, the central bank said in a statement. It did not give details of the new rules.

Dubai Islamic Bank Pakistan and Western Union launch remittance service
Dubai Islamic Bank Pakistan Limited (DIBPL) and Western Union (WU) have launched a convenient remittance solution for

Issue of Sukkuk Regulations, 2012 by SECP on 28th September, 2012

Securities and Exchange Commission of Pakistan (SECP) issued draft regulations namely Issue of Sukuk Regulations, 2012 through S.R.O. 1223(I)/2012 on 28th September, 2012.

State Bank developing new fiveyear strategic plan for Islamic banking industry: Kazi Abdul Muktadir
Kazi Abdul Muktadir, Deputy Governor, State Bank of Pakistan (SBP) has said the central bank is developing a new fiveyear (201317) strategic plan for Islamic banking industry. The new plan will set the strategic direction for the Islamic banking industry. This would define the strategies and action plans to move the industry to the next level of growth and SBP would expect active and meaningful involvement of the industry in development of the plan, Mr. Muktadir said while delivering his keynote address on Islamic Finance in Pakistan Where We Stand and The Way Forward at the Islamic Finance News (IFN) Roadshow 2012 at SBP Learning Resource Centre (LRC), Karachi

Redefining finance


Optimists will hail the fact that finally, after a mushroom growth in Pakistan of Islamic and other banks offering Sharia-compliant services and products, a debate has finally been generated about the viability

The news included here is on the basis of information obtained from local and international print and electronic media sources. IFP team does not accept any responsibility about their bona-fide.
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Book in the Spotlight

Islam Aur Jadeed Maashi Masail (Second Volume)

By Justice Mufti Muhammad Taqi Usmani Reviewed by

Mufti Haseeb Ahmed
This is the second volume out of the 8 volume set. As we discussed in our previous issue that it is a compilation of authors numerous articles written over his life span, which is why all the articles may not be very much relevant with each other inside a same volume. Yet what little relevance the compilers found among those articles was bought up as the cover title for each volume. Consequently this volume was named as Khareed-o-farookht ki jaiz-o-najaiz surten (permissible and impermissible ways of buying and selling), even though all the topics in this volume are not only about buying and selling rather other issues also. This volume contains discussion on many kinds of transactions which are widely practiced in our economy but no clear and direct jurisdiction is mentioned in classical books of Islamic jurisprudence notably provident fund, paper currency, auction e.t.c. The author comes up with the other conventional Shariah and cons for a practitioner unlike its first volume which mostly covered the intentional background of the practitioner in the economy. Due to transformation in lifestyle and ways of dealing among themselves and with non-Muslims around the world, with the pace of time different schools of thoughts in Islamic jurisprudence emerged in different parts of the world. As this volume covers various types of the modern economical activities with respect to their Shariah rulings, the author successfully debates with as many acceptable opinions from several schools of thoughts as possible. He not only entertains the reader with views of other remarkable scholars of their time but also takes every debate to logical and reasonable conclusion. Published by: Idara-e-Islamiat, Lahore.

rulings which are very much similar to what we are experiencing in this modern era. This volume and further volumes of this 8 books set are more of a pros

About the Author

Mufti Muhammad Taqi Usmani is one of the leading Islamic scholars living today. He is an expert in the fields of Islamic Jurisprudence, Economics, Hadith and Tasawwuf. Born in Deoband in 1362H(1943 CE), he graduated par excellence form Dars e Nizami at Darul Uloom, Karachi, Pakistan. Then he specialized in Islamic Jurisprudence under the guidance of his eminent father, Mufti Muhammad Shafi, the late Grand Mufti of Pakistan. Since then, he has been teaching hadith and Fiqh at the Darul-Uloom, Karachi. He also holds a degree in law and was a Judge at the Sharia Appellate Bench of the Supreme Court of Pakistan. He has been writing on various Islamic topics and is author of more than 60 books and numerous articles. Presently he is the Vice-president of Darul-Uloom, Karachi, Pakistan, where he teaches Sahih Bukhari, Fiqh and Islamic economics.

An initiative of IFP forum

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Ask Us
By Mufti Ibrahim Essa and Mufti Javed Ahmed
Question: What are the Shariah permissible measures in Istisnaa contract if the ultimate purchaser delays in the process of taking the possession of subject-matter? Answer: It is permissible to state in a contract of Istisna'a that the manufacturer will act as the agent of the ultimate purchaser to sell the subject-matter if there is a delay on the part of the purchaser in taking delivery of the subject matter within a particular period of time. In this case, the manufacturer will sell the subjectmatter on behalf of the ultimate purchaser and, after deducting the agreed contract price, the balance, if any, will be returned to the purchaser. If the price obtained is less than the contract price, the manufacturer shall have a right of recourse to the ultimate purchaser for the recovery of the remaining balance. In addition, the ultimate purchaser will bear the expenses incurred in selling the subject-matter. Question: Is it permissible to accept mortgage in the form of investment units? What are the Shariah instructions in this regard? What will be the status of profit realized in the mortgage period? Answer: The Islamic bank can accept mortgage in the form of investment units in Islamic investment funds. In this case the institution as a mortgagee can suspend the right of the client to get back or draw from the account, absolutely or proportion to the amount of the debt, whichever is more appropriate. The income and growth earned by units or the account are considered to be mortgaged along with the principle. This should hold true whether the contractual relationship between the client and the Islamic bank or the fund is Mudarabah or investment proxy, unless the two parties agree on other agreement.

M o v e s Promotions

a n d

Mr. Kamran Masud, - New Group Head Bank of Khyber (BOK), Islamic Banking Group. Previously worked at Meezan Bank - Regional Head North. Mufti Zahid Siraj, Head of Internal Shariah Audit, Burj Bank Pakistan. Previously Shariah Coordinator - Audit. Mr. Arshad Hussain Zubairi, Senior Manager Islamic Financial Services Group (Ernst & Young). Previously worked as Manager EY-IFSG

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