TAHIR AMIN

ISLAMABAD: Islamic banks in Pakistan (B3 stable) have ample capital and liquidity buffers to meet increased demand for financing in 2021 as economies bounce back from the coronavirus pandemic, says Moody’s Investors Services (Moody’s).

Moody’s in its latest report, “Islamic banks – South and Southeast Asia Sector is well positioned for continued growth as economies recover” stated that Islamic banks in Bangladesh (Ba3 stable), Brunei (unrated), Indonesia (Baa2 stable), Malaysia (A3 stable) and Pakistan (B3 stable) have ample capital and liquidity buffers to meet increased demand for financing in 2021 as economies bounce back from the coronavirus pandemic.

Prospects for longer-term growth are also bright for the sector, thanks to young, growing populations and government efforts to develop Sharia-based financing.

It further stated that in Pakistan, the central bank in July 2020 started allowing Islamic banking windows, which are dedicated counters in branches of conventional banks, to offer financing on condition the branches become fully Sharia-compliant within three years.

As part of the country's financial inclusion strategy, the Pakistani government aims to increase the share of Islamic banking to 25 percent.

Islamic banks in South and Southeast Asia have sufficient capital and liquidity to meet increased demand for financing as economies recover from the pandemic, while young, growing populations and government efforts to develop the sector will support long-term growth, according to a new report by Moody’s Investors Service.

“Although Islamic banks’ profitability in these regions weakened in 2020, their capital buffers remain mostly robust, supported by government measures to soften the impact of the coronavirus outbreak. Strong capitalization will in turn enable Islamic banks to meet increased demand for financing as economies recover,” said Tengfu Li, a Moody’s analyst.

Liquidity has also eased or remained stable because of strong growth in low-cost deposits as consumers and businesses cut spending, and as central banks relaxed reserve requirements and carried out open market operations.