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Samba Bank Limited, a subsidiary of Saudi National Bank, has officially announced its intention to transition from conventional banking to a fully Islamic financial institution. The bank shared this development in a regulatory filing to the Pakistan Stock Exchange (PSX) on Thursday.
“The Board of Samba Bank Limited has, in principle, approved the plan to convert from Conventional to Islamic Bank,” according to an official notification. The bank has announced that it will now submit a preliminary plan to the State Bank of Pakistan for approval.
However, Samba’s share price experienced a 5.56% decline immediately following the announcement and was trading at Rs8.49 as of 01:19 pm, a decrease of Rs0.50 from the previous session. Investors’ uncertainty regarding the bank’s transition strategy is indicated by the market’s response.
Samba Bank’s decision is indicative of the increasing trend among financial institutions in Pakistan to transition to Shariah-compliant banking models. Islamic banking is a banking system that is in accordance with the essence, ethos, and value system of Islam and is governed by the principles established by Islamic Shariah, as announced by the State Bank of Pakistan (SBP).
The more general term, Islamic banking, is founded on the principle of refraining from unethical and unsocial practices, as well as from interest-based transactions that are prohibited in Islamic Shariah. The Bank of Khyber announced last month that it would commence the process of transitioning from a conventional bank to a completely Islamic financial institution.
The Islamic banking industry’s assets increased by Rs192 billion during the quarter ending September 2024, reaching a total of Rs9,881 billion, according to SBP data. In the same vein, deposits continued to expand, increasing by Rs233 billion to Rs7,596 billion during the same period.
The Islamic banking industry experienced a 17.4% increase in assets and a 23.3% increase in deposits on a year-over-year (YoY) basis. The percentage of Islamic banking in the overall banking industry increased marginally from the previous quarter, reaching 19% in total assets and 23.2% in deposits.
Samba Bank’s decision to transition to Islamic banking aligns with the growing industry trend in Pakistan, but the immediate market reaction highlights investor uncertainty over the shift. As the bank moves forward with regulatory approvals, its success will depend on effective execution and market confidence in its Shariah-compliant transformation.
