By Yasir Ameen, WEEKLY PULSE MAGAZINE, October 14, 2013
The penetration of Islamic Banking Industry has witnessed increasing in different sectors of the country with outstanding growth of financing to various entities showing a surge of 10.4 percent in the second quarter of 2013 compared with first quarter.
IBI financing picked up gradually in three months—April, May, June—with cumulative financing of Rs 275.8 billion to 12 major sectors of the country with increasing confidence of businessmen and industrialists on the Sharia based financing, the statistics of State Bank said.
In the first quarter of 2013, the financing was to various sectors stood at Rs 251.1 billion while by the end of December 2012, it stood at Rs 242.1 billion and IBI’s financing stood at Rs 209.4 billion in June 2012.
Islamic Banks and Islamic Banking Division have made financing largely under Murabaha, which has remained the highest mode for financing with Rs 110 billion contribution and share of 39 percent in overall financing.
Diminishing Musharaka and Ijarah were second and third modes of financing with contribution of Rs 90.8 billion and Rs 18.5 billion having quarterly share in financing stood at 32.9 percent and 8.5 percent.
The financing extended by IBIs is mainly concentrated in the textile sector with 16.3 percent, though the share of textile witnessed a slight decline during the quarter ending June 2013.
Other sectors including agribusiness with 8.7 percent, electronics & electrical appliances with 10.2 percent and chemical & pharmaceuticals with 3.6 percent witnessed an increase in their shares during the quarter ending in June 2013.
Like previous quarters corporate sector remained the highest contributor in terms of client wise financing of IBIs having a share of above 70 percent followed by consumer financing with 12.8 percent, commodity financing with 10.9 percent and SME with 3.7 percent in overall financing.
In terms of quarterly growth, all sectors of client wise financing of IBIs registered positive growth except agriculture SME and others.
On the other hand, the profitability of the Islamic banking industry reached above Rs 4.3 billion by end June 2013 from Rs. 2.2 billion by end March 2013, though lower compared to Rs 5.9 billion profits registered during June 2012, showing 27% decline.
Islamic Banking Bulletin released by State Bank of Pakistan (SBP) stated that the asset base of the industry reached to Rs. 903 billion registering year on year (YoY) growth of 27 percent, while deposits grew by 28 percent (YoY) to reach Rs 771 billion by end June 2013.
The market share of both assets and deposits increased during the quarter under review and reached 9 percent and 9.9 percent respectively, in overall banking industry.
The branches’ network of the Islamic banking industry also increased as 15 new branches were added during the review quarter as the overall industry is standing with 1,115
Asset base of the Islamic banking industry crossed Rs. 900 billion as it reached Rs 903 billion by end June 2013 from Rs. 847 billion in the previous quarter. IBIs share of assets in overall assets of the banking industry also increased to 9.0 percent from 8.7 percent in the last quarter.
Increase in assets was contributed by both investments and financing, the two major components of assets, though growth in financing (10.4 percent) was higher compared to growth in investments (2.0 percent). Consequently share of investments in overall asset portfolio declined below 50 percent to reach 48.6 percent by end June 2013 compared to 50.8 percent in previous quarter.
One of the major reasons for this decline in investment was that no new GoP Ijara Sukuk was issued during the review period and Islamic banking institutions thus had limited investment opportunities.
On the other hand financing witnessed an increase in its share in overall assets to reach 28.9 percent by end June 2013 from 27.9 percent by end March 2013.
Further analysis of assets shows that assets of both Islamic Banks (IBs) and Islamic Banking Divisions (IBDs) of conventional banks witnessed positive growth compared to previous quarter with IBDs recording relatively better growth (7.2 percent) compared to IBs (6.4 percent). In terms of share, assets of IBs contribute 64 percent in overall assets of Islamic banking industry with remaining 36 percent assets being contributed by IBD.
The investments of Islamic banking industry registered quarterly growth of 2.0 percent reaching Rs 438 billion by end June 2013 compared to Rs 430 billion by end March 2013. The growth rate of 2 percent is however lower than 9.1 percent growth witnessed by investments in previous quarter mainly due to no-issuance of GoP Ijara Sukuk during the review period. Despite no issuance of GoP Ijara Sukuk Federal government securities still registered quarterly growth of 2.3 percent reflecting purchase of Sukuk in the secondary market by Islamic Banking institutions from conventional banks. Like previous months, the share of Federal government securities in overall investments remained highest contributing more than 71 percent in investment portfolio of Islamic banking industry.
Overall, Islamic banking industry grew by nearly 7 percent during the second quarter of 2013 showing its momentum started weakening due to increasing base.