ISLAMABAD, July 13 — Pakistan’s Islamic banking sector has expanded its share of deposits, financing and banking assets, strengthening its role ahead of the country’s planned transition towards a Riba-free financial system after 2027.
The Islamic banking sector in Pakistan now accounts for 28 percent of total banking deposits, 38 percent of financing and 23 percent of overall banking assets, according to the Post-2027 Financial System in Pakistan strategy paper available with Wealth Pakistan.
The figures show that Shariah-compliant banking is becoming an increasingly important part of the financial system for businesses and consumers seeking alternatives to conventional financial services.
Pakistan currently operates a dual banking system in which conventional and Islamic financial institutions function alongside each other. The parallel structure, introduced in the early 2000s, allows individuals and businesses to choose between conventional and Shariah-compliant banking according to their commercial needs and religious preferences.
Islamic Banking Assets Reach Rs14.467 Trillion
The Islamic banking industry comprises seven full-fledged Islamic banks and 16 conventional banks offering Shariah-compliant services through dedicated branches.
By the end of December 2025, the sector’s total assets had reached Rs14.467 trillion, while deposits stood at Rs11.037 trillion, reflecting continued growth in its customer base and operational scale.
The strategy paper said this expansion had strengthened the institutional foundation required for a gradual transition to a Shariah-compliant financial architecture after 2027.
Islamic Banks Maintain Strong Financial Indicators
Islamic banks recorded a non-performing financing-to-gross-financing ratio of 2.4 percent by the end of 2025, indicating relatively low credit risk and satisfactory asset quality.
Provisioning coverage remained above 100 percent, while increased investment in Sukuk supported liquidity across the industry.
The sector’s Capital Adequacy Ratio stood at 17.5 percent, well above the minimum regulatory requirement. The document said several financial soundness indicators for Islamic banks remained robust and, in some areas, stronger than those of conventional institutions.
These indicators are expected to help maintain stability as the sector expands and assumes a larger role in financial intermediation.
Broader Banking Sector Remains Well Capitalised
Pakistan’s banking system includes 33 public-sector, private-sector and foreign banks, including three digital banks that recently began operations.
The combined branch network of banks and microfinance banks reached 20,214 by the end of December 2025. The strategy paper said continued branch expansion and greater use of digital and alternative delivery channels were improving access to financial services.
Despite periods of macroeconomic pressure and policy uncertainty, the banking sector continued to provide credit, payment and other financial services while remaining sound and well capitalised.
The overall banking sector’s Capital Adequacy Ratio stood at 20.8 percent in December 2025, comfortably above domestic and international minimum regulatory requirements. Provisioning coverage exceeded 100 percent, while profitability remained healthy.
Banks Dominate Pakistan’s Financial System
The banking sector accounts for approximately 79.3 percent of Pakistan’s total financial-sector assets, equivalent to Rs63.231 trillion.
Institutions regulated by the State Bank of Pakistan collectively represent around 83 percent of total financial-sector assets, highlighting the central role of banks in credit provision, payments, savings and international trade.
According to the strategy, the continued expansion of Islamic banking will be important to Pakistan’s post-2027 financial transition.
Its growing market share, financial strength and expanding operational capacity are expected to support the gradual development of a Shariah-compliant system without disrupting stability across the wider financial sector.
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