KARACHI: JS Bank Ltd said on Tuesday it wants to acquire more than 51 per cent shares and control of BankIslami Pakistan Ltd.

One of the smallest lenders in terms of market capitalisation, JS Bank already owns 7.79pc shareholding in the country’s second largest Sharia-compliant bank.

Speaking to Dawn, Topline Securities Research Director Umair Naseer said it’s unclear at the moment whether the transaction will ultimately lead to a side-by-side existence of the two banking institutions or the surrendering of licence by one of the two entities.

BankIslami is already an associated company of JS Bank. It acquired 7.79pc of the Sharia-compliant lender last week. Jahangir Siddiqui and Company Ltd, which is the parent entity of JS Bank, separately owns a 21.26pc stake in BankIslami.

This means the JS Group is already in control of 29.05pc shareholding in the Islamic bank. Other shareholders in BankIslami are its chairman Ali Hussain (19.83pc), Shabir Ahmed Randeree (11.54), Ahmed G.M. Randeree (7.93pc), Saj Capital Management (4.54pc) and others (27.11pc).

Islamic banking has a huge potential for growth given that it’s currently dominated by one unusually big player (Meezan Bank) that owns more than half of all the branches operated by full-fledged Islamic banks in Pakistan.

Banks are expected to transition from a mostly conventional to completely Islamic system in the next five years as the State Bank of Pakistan (SBP) recently withdrew its legal challenge to the decision of the Federal Shariat Court to do away with interest-based banking by 2027.

Only five full-fledged Islamic banks currently operate in Pakistan while 17 conventional banks also run their Islamic banking branches through separate windows. They collectively control around one-fifth of the country’s total banking assets.

In view of the government’s renewed commitment to Islamic banking, all conventional banks are expected to convert their operations to the Sharia-compliant system within five years.

But some analysts have privately expressed doubts about the likelihood of a 100pc switch to Islamic banking in a short period of time.

“There’ll be hurdles in the implementation of interest-free banking. There’s a big question mark on the availability of assets that the government requires to back all its borrowings,” the analyst said while referring to the asset-based nature of Islamic banking.

BankIslami earned a net consolidated profit of Rs1.4bn in July-September, up 104.2pc from a year ago.

Published in Dawn, November 16th, 2022