Islamic banking deposits expands market share to 15.5%

State Bank of Pakistan releases report discussing growth of Islamic banking industry

Salman Siddiqui April 09, 2019

KARACHI: The 17-year-old Islamic banking industry has continued to emerge as a banking of choice in Pakistan. It has managed to increase its market share with higher corporate and individual deposits, and increased financing, which lent it much-needed support in earning better profit in the year ended December 2018.

The market share of Islamic banking deposits in the overall banking industry increased one percentage point to 15.5% in calendar year 2018 compared to 14.5% at the end of December 2017, the State Bank of Pakistan (SBP) reported on Monday.

In absolute terms, the Islamic banking deposits surged Rs318 billion, or 17%, to Rs2.20 trillion as on December 31, 2018.

Simultaneously, assets (net) of banks grew 1.1 percentage points to 13.5% (Rs2.65 trillion) in the year under review compared to 12.4% (Rs2.27 trillion) in the preceding year, the bank reported.

The growth in assets reflects increased lending by Islamic banks as they count the financed things as assets on their balance sheets. “This growth in assets was mainly contributed by financing (net) that recorded quarterly (December-end versus September-end) growth of 10.7% (Rs146 billion),” the central bank said in its Islamic Banking Bulletin December 2018.

On the other hand, investments (net) of the Islamic banking industry declined 3.7% (Rs20 billion) in the quarter.

“In terms of sector-wise financing, production and transmission of energy and textile remained the two leading sectors and their share in overall financing of the Islamic banking industry was recorded at 17.7% and 13% respectively by end-December 2018,” it said.

A review of client-wise financing reveals that the corporate sector accounted for a 74.3% share in overall financing of the Islamic banking industry, followed by commodity financing with a share of 10.5%.

The share of small and medium enterprises’ (SMEs) financing and agricultural financing in overall financing of the Islamic banking industry was recorded at 3.7% and 0.3%respectively.

Pre-tax profit surges 48%

Profit before tax of the Islamic banking industry grew 48% to Rs34 billion in 2018 compared to Rs23 billion in the preceding year.

Profitability ratios like return on assets lending and return on equity (before tax) were recorded at 1.4% and 22.3% respectively by the end of December 2018.

Operating expense-to-gross income ratio improved further and was recorded at 62.9% compared to 69.8% in the previous quarter, the central bank added.

Asset quality indicators of the Islamic banking industry including non-performing finances (NPFs)-to-financing (gross) and net NPFs-to-net financing were registered at 2.4% and 0.4% respectively by end-December 2018.

Both these ratios showed further improvement compared to the previous year, mainly due to a significant rise in financing portfolio of the Islamic banking industry during the period under review, said the central bank.

The network of the Islamic banking industry consisted of 22 Islamic banking institutions - five full-fledged Islamic banks (IBs) and 17 conventional banks having standalone Islamic banking branches (IBBs) by end-December 2018.

During the period under review, Zarai Taraqiati Bank Limited started its Islamic banking operations. Branch network of the Islamic banking industry was recorded at 2,851 (spread across 113 districts) by end-December 2018.

During CY18, 270 branches were added to the branch network of the Islamic banking industry.

The number of Islamic banking windows operated by conventional banks, which had standalone Islamic banking branches, stood at 1,288.

Published in The Express Tribune, April 9th, 2019.

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