finance
Karachi Banks Redirect Private Lending Toward Islamic Branches, Boost Profits
Conventional banks extend sharply higher financing through Islamic operations as profitability dynamics reshape lending patterns.
How we reported this
Conventional banks operating in Karachi have redirected private-sector lending heavily toward their Islamic banking branches, with financing through those branches reaching Rs795.5 billion in FY26 compared with Rs153 billion the prior year.
Why the Shift Matters for Investment Flows
The change reflects a broader preference among conventional banks for Islamic banking because it permits lower returns to depositors than conventional products. This preference has begun reshaping the dynamics of Pakistan’s banking sector and has produced faster growth in Islamic financing and assets than in conventional banking. Banking experts note that Islamic banks generally deliver lower returns to depositors and investors, contributing to stronger margins for the institutions themselves.
Evidence from State Bank of Pakistan Data
State Bank of Pakistan figures show lending to the private sector by Islamic banking branches of conventional banks surged to Rs795.5 billion during FY26, the period from July 1, 2025 to June 26, 2026. In the same period, lending through the conventional operations of those same banks fell from Rs405.7 billion in FY25 to Rs139 billion in FY26. Full-fledged Islamic banks adopted a more cautious stance, with their private-sector financing dropping to Rs214.5 billion in FY26 from Rs518 billion in FY25.
Outlook for Borrowers and Depositors
The pattern indicates conventional banks have increasingly viewed Islamic banking as a more profitable model. Borrowers seeking private-sector credit may encounter more offerings structured through Islamic branches, while depositors may see continued differences in returns between Islamic and conventional accounts. The sector-wide trend points to sustained expansion of Islamic financing relative to conventional lending in the periods ahead.
This article is general information only and is not personal financial or investment advice. Consider your own circumstances and seek licensed professional advice before making financial decisions.