PAGE Blog Business Weekly Magazine
Presently Pakistan is one of the active and effective players in worldwide Islamic finance industry and State Bank of Pakistan (SBP) has remained at forefront in developing and promoting Islamic finance in the country. Learning from past experience, SBP adopted an evolutionary approach for establishing Islamic banking in Pakistan in 2001. Since then and the industry commencing from scratch in 2001, has increased above 11 percent share in assets and 13 percent share in deposits of overall banking industry.
In previous two years, SBP has worked towards offering conducive environment for growth of Islamic finance in Pakistan and some of its major recommendations like establishment of centers of excellence, introduce of all Islamic share index and strategy framework for establishment of Islamic banking subsidiaries have already been implemented.
Assets
Asset base of Islamic Banking Industry (IBI) recorded a growth of 6.5 percent during the quarter October to December 2015 to stand at Rs1,610 billion from Rs1,511 billion in the last quarter. This growth in Islamic banking assets was higher as against to growth in the whole banking industry assets resulting in a rise in market share of assets of Islamic banking in the entire banking industry’s assets from 11.2 percent by close September 2015 to 11.4 percent by end December 2015.
Furthermore, asset composition of IBI identifies that rise in assets was chiefly contributed through financing that recorded quarterly growth of 21.1 percent to touch Rs645.3 billion by close December 2015 as against Rs532.9 billion in the last quarter. The assets by breakup among Islamic Banks (IBs) and Islamic Banking Branches (IBBs) of conventional banks explains that assets of both IBs and IBBs registered growth of 5.3 percent and 8.6 percent respectively as against to the last quarter. However, the share of IBs (61.9 percent) stayed larger than that of IBBs (38.1 percent) in overall assets of IBI.
Investments
Investments (net) of IBI increased by 10.1 percent to touch Rs431.9 billion by close December 2015 as against to Rs392.4 billion by close September 2015. The progress in investments was chiefly contributed through investment in Federal government securities as it increased by 16.7 percent during the quarter owing to issuance of GoP Ijara Sukuk of Rs117.7 billion in December 2015.
Other components of investments such as fully paid up ordinary shares and PTCS/bonds/sukuk certificates also reflected a quarterly growth of 6.2 percent and 2.9 percent respectively during the quarter. Break up of investments among IBs and IBBs reveals that investments of IBBs grew by 15.6 percent (Rs30.2 billion) during the quarter as against to the rise of 4.7 percent (Rs9.3 billion) in investments of IBs.
Financing
Financing and related assets (net) of IBI recorded growth of 21.1 percent during the quarter October to December 2015 and touched Rs645.3 billion. Both IBs and IBBs recorded growth in financing (net), however financing through IBs increased more (26 percent) as against to IBBs (11.3 percent).
The fast paced growth in financing compared to deposits’ growth (8.2 percent) resulted in enhancing FDR (Financing to Deposits ratio) which was recorded at 46.9 percent during the quarter as against to 41.9 percent in the last quarter. A further analysis of FDR identifies that FDR of IBs stayed higher (52.2 percent) as against to FDR of IBBs (38.1 percent). In terms of concentration of financing among many sectors, textile stayed the leading sector and its share in overall financing recorded a raise of 2.1 percent during the quarter as against to the same period last year.
Review of client wise financing shows that financing of IBI stayed concentrated in the corporate sector, having a share of 74.4 percent, followed by consumer financing (10 percent) and commodity financing (8.6 percent).
Asset Quality
Asset quality indicators of the Islamic banking industry, counting NPFs to Financing and Net NPFs to Net Financing enhanced as against to the last quarter. Furthermore both NPFs to Financing and Net NPFs to Net Financing of the Islamic banking industry are lower as against to the entire banking industry. Among other asset quality indicators Provisions to NPFs ratio was recorded 95.6 percent as of December 2015 as against to the industry average of 84.9 percent.
| CLIENT WISE FINANCING PORTFOLIO (Percent Share) | ||||
| Description | Dec-14 | Sep-15 | Dec-15 | Industry |
| Corporate Sector | 76.9 | 73.5 | 74.4 | 67.0 |
| SMEs | 3.6 | 2.8 | 3.1 | 6.2 |
| Agriculture | 0.4 | 0.8 | 0.6 | 5.9 |
| Consumer Finance | 11.9 | 11.3 | 10.0 | 6.6 |
| Commodity Financing | 5.3 | 7.9 | 8.6 | 12.1 |
| Staff Financing | 1.6 | 1.5 | 1.3 | 2.1 |
| Others | 0.3 | 2.2 | 2.0 | 0.1 |
| Total | 100.0 | 100.0 | 100.0 | 100.0 |
Liabilities
Deposits of IBI recorded a growth of 8.2 percent during the quarter October to December 2015 and stood at Rs1,375 billion as against Rs1,271 billion in the last quarter. Resultantly, the market share of IBI’s deposits in overall banking industry’s deposits also rose from 13.1 percent by close September 2015 to 13.2 percent by close December 2015.
Both customers’ deposits as well as financial institution’ deposits recorded optimistic growth and increased by Rs96 billion and Rs8 billion respectively during the quarter. The breakup of deposits explains that current (non-remunerative) and saving deposits rose by Rs51 billion and Rs39 billion respectively during the quarter.
Bifurcation of deposits among IBs and IBBs were revealed that deposits of both; IBs and IBBs, recorded rise of Rs65 billion and Rs39 billion respectively. Likewise financing, the share of IBs (62.5 percent) in overall deposits of IBI was higher than IBBs (37.5 percent).
