Using IFPD Circular No. 09 of 2024, the State Bank of Pakistan (SBP) has sought to modify the profit-sharing mechanism provisions regarding savings deposits received by Islamic Banking Institutions (IBIs). This measure ensures a level playing field in the banking environment.
As per Arif Habib Limited, IBIs tend to see a dent in profitability due to the high costs associated with these savings deposits induced by the MDR stipulation. This particularly concerns PKR savings deposits, except those held by other financial institutions, public sector enterprises, and public limited companies.
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Meezan Bank Limited (MEBL) has a ‘Sell’ rating. AHL has reduced its CY25 earnings estimate for the company to an adjusted Rs. 34.4/share, a reduction of Rs. 9.0/share from earlier. The target price is cut from Rs. 289.3/share to Rs. 205.2/share, implying a total return of -3.3 percent from the last closing price.
The impact on IBIs profitability would depend on the incremental cost of saving deposits and their ability to offset higher costs through higher non-funded income and capital gains. A cautious but positive view should be taken for Islamic banks, favoring those well-equipped to deal with spread pressure.