Islamic banks have ample capital, liquidity buffers: Moody's
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 Shariabased 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.
To strengthen Pakistan's polio eradication efforts, the Islamic Development Bank (IsDB) has signed a Supplemental Agreement amending the Master Murabaha Agreement with the Government of Pakistan offering financial assistance worth US$ 60 million.
The financial support will be disbursed as a 35% grant and a 65% loan, adding to the US$ 427 million the bank has already contributed to the polio programme in the country since July 2012.
In September 2019, Pakistan signed an agreement with the IsDB titled the Master Murabaha Agreement, whereby the Pakistan Polio Eradication Programme was granted a loan of US$ 100 million. The support was offered as a 90% loan and a 10% grant under the Lives and Livelihood Fund (LLF), a US$ 2.5 billion funding project of the bank and other development cooperation partners. LLF, the largest development initiative of its kind in the Middle East, serves 33 IsDB countries with the aim to raise the poorest member countries out of poverty.
The IsDB assistance supports supplemental immunization activities and the procurement of polio vaccines aimed to stop the transmission of poliovirus in Pakistan through various campaigns.
Pakistan resumed its polio eradication efforts in July after a four-month pause following the rapid escalation in cases of COVID-19 around the world. To continue with the momentum gained in past years, campaigns have resumed around the country since July 2020 under strict COVID-19 preventive measures, reaching all children under the age of 5.