Profitability of the Islamic Banking Industry (IBI) posted a healthy growth of some 140 percent in the second quarter of this calendar year (CY14). The market share of the IBI in overall banking industry's assets also increased to 9.8 percent at the end of the second quarter (April-June) compared to 9.4 percent in the first quarter (January-March) of CY14.
According to State Bank of Pakistan (SBP), the IBI earned a profit of Rs 7.7 billion during the second quarter of CY14 against Rs 3.2 billion in first quarter, depicting an increase of 140 percent or Rs 4.5 billion. The end-June 2014 profitability is also higher than second quarter of CY13, in which profitability of the IBI was registered at Rs 4.3 billion.
Assets and deposits of the IBI continued to move upward during the second quarter of CY14. Assets of the Islamic banking industry increased by 7 percent to reach Rs 1.089 trillion at the end of June 2014 compared to Rs 1.016 trillion in March 2014. Deposits also increased by 7 percent or Rs 60 billion to Rs 932 billion up from Rs 872 billion during the period under review.
This increase in deposits was mainly due to customers' deposits that grew by 7.5 percent during the review quarter. However, unlike previous quarter, the share of Islamic banking industry's deposits in overall banking industry declined slightly during April to June quarter 2014 to reach 10.6 percent compared to 10.7 percent in previous quarter as deposits of the overall banking industry grew at relatively higher pace (7.6 percent) compared to growth in deposits of Islamic banking industry (6.9 percent).
According to SBP, among indicators of earnings and profitability both return on equity (ROE) and return on assets (ROA) increased during quarter ending June 2014 compared to previous quarter mainly due to declining non-performing financing of the Islamic banking industry. Asset quality indicators of the Islamic banking industry including non-performing financing (NPF) and NPFs to financing decreased during the second quarter of CY14.
Branch network of Islamic banking industry continued to increase during the quarter ending June 2014. With addition of 21 branches during the quarter, the cumulative number of Islamic banking branches reached 1,335. The number of Islamic banking institutions also increased during the quarter, as two banks, ie, Allied Bank Limited and Sindh Bank Limited started Islamic banking operations after obtaining license and necessary approval from the SBP.
Branch network of the Islamic banking industry is still concentrated in two provinces, ie, Sindh and Punjab, which comprise some 78 percent branch network. Islamic banking industry thus needs to expand their branch network to smaller provinces which hitherto remained under served, the SBP said.
Gross financing of the Islamic banking industry grew by 4.9 percent during the quarter under review, to reach Rs 339 billion by end June 2014 up from Rs 323.2 billion in the previous quarter. This increase is however in line with the usual trend in which financing picks up during the second quarter of CY13 after showing relatively slower growth in the first quarter.
After witnessing decline in the previous two quarters, investments of Islamic banking industry increased during the second quarter of CY14 to reach almost Rs 358 billion from Rs 354 billion by end March 2014. In line with general trend operating expense to gross income of Islamic banking industry remained higher than that of overall banking industry.
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