PKR saving deposits: IBIs required to pay profit equivalent to 75pc of WAGY of all pools

KARACHI: In a significant move aimed at boosting returns for savers, the State Bank of Pakistan (SBP) has asked the Islamic Banking Institutions (IBIs) to pay profit on their PKR saving deposits equivalent to at least 75 percent of the weighted average gross yield (WAGY) of all pools.

However, this condition will not be implemented on deposits of financial institutions, public sector enterprises and public limited companies.

According to SBP, for the purpose of determining the gross yield of each pool, the monthly gross earnings of the pool shall be divided by the monthly average assets of the pool (excluding fixed assets).

However, the pool(s) created by IBIs for Shariah compliant standing ceiling facilities and Shariah compliant open market operations (OMOs) will be excluded while calculating weighted average gross yield of pool(s).

Industry sources said that currently, IBIs are paying some 6.5 percent to 705 percent profit on saving deposits, now as per initial estimates; they will be required to pay about 10.50 to 11.50 percent.

In order to implement these instructions, SBP has made some revisions in the “Instructions for Profit & Loss Distribution and Pool Management for IBIs.” Clause 4.2.3 shall be deleted.

Clause 5.2.1 has been replaced with “IBI may forego a part of its Mudarib share as Hiba to meet the market expectation in case of lower than expected/market returns earned by the pool. However, IBIs maintaining PER will reduce their Mudarib share only if the PER is insufficient to improve the profit payouts to the depositors.”

In addition, clause 5.2.2 will be replaced with “If needed, IBIs may give hiba to saving account depositors to meet the requirement of minimum profit rate.”

IBIs are required to pay profit on their PKR saving deposits (excluding deposits of financial institutions, public sector enterprises and public limited companies) equivalent to at least 75 percent effective from January 1, 2025.

Analysts said that this move is beneficial for the depositors, however will reduce the profit of the IBIs and expected to enhance the competitiveness of Islamic banking and provide better returns to retail customers.

The country’s largest Islamic bank - (Meezan Bank) posted a Profit After Tax (PAT) of Rs 77.5 billion up from Rs 58.04 billion in the corresponding period last year, a growth of 34 percent.

Copyright Business Recorder, 2024