Islamic banking in Pakistan is gradually gaining popularity as the deposits and profits under this system during the first quarter of current year have risen by 15 percent and 14 percent respectively, but the economists consider this ratio unsatisfactory.
State Bank of Pakistan (SBP) has issued a comparative consolidated balance sheet of Islamic banking industry, which shows that total assets portfolio in the Islamic banking sector expanded by 15 percent, ie from Rs 118.183 billion to Rs 135.641 billion, during the first quarter (January-March) of 2007 quarter ending December 2006.
Despite 15 percent growth in the Islamic banking deposits, analyst says that it is not encouraging figures. "While the SBP has banned the new interest-based commercial banks in the country, interest-based banks are also opening branches of Islamic banking, even then we were expecting tremendous growth in deposits of Islamic banking," said economist Shahid Hassan Siddiqui.
He said that other banking system deposits were also increasing, as the country was receiving over Rs 300 billion remittances from overseas Pakistanis every year.
"Deposits and profit ratio of Islamic banking is not satisfactory, but when its ratio will be higher than the interest-based banking, then we will feel that Islamic banking growth is better," he added.
Un-appropriated profit of Islamic institutions as at the end of first quarter increased by 14 percent to stood at Rs 860 million in comparison to the previous quarter's figures of Rs 756 million.
The balance sheet said that Islamic investment witnessed a growth of 19 percent during January-March of 2007, as it has reached Rs 8.403 billion as against Rs 7.053 billion during the last quarter. A substantial growth was witnessed in balances with other banks and balances, held by Islamic Banking Institutions (IBIs) in other banks, increased by 35 percent, ie from Rs 16.383 billion to Rs 22.192 billion, the SBP said.
This increase was attributed mainly to introduction of new players in the market and increased liquidity with the IBIs and non-availability of Shariah Compliant government securities.
Similarly, deposits of Islamic institutions have touched new peak of Rs 93.068 billion at the end of March from Rs 83.742 billion during the previous quarter, ending December 2006, depicting an increase of Rs 9.326 billion or 11 percent in the first quarter of the current year.
Islamic Banking sector's equity increased by 32 percent to Rs 20.925 billion during January-March 2007 as compared to Rs 15.847 billion at the end of December 2006. "Main reasons for this heavy increase in equity are that a new full-fledged Islamic bank has started its operations in February 2007 by the name of Emirates Global Islamic Bank, Pakistan, contributing an increase in equity by Rs 2.895 billion," said the SBP. While, minimum capital requirement for conventional banks also applies to Islamic banking institutions in Pakistan because of which the equity of Islamic banking institutions has increased in the first quarter of 2007, the SBP added.
The balance sheet shows that financing constituted 52 percent of the total assets and stood at Rs 69.993 billion at March-end as compared to Rs 65.137 billion at the end of December 2006, showing an increase of seven percent during the first quarter. The Islamic banking industry's liabilities have reached Rs 114.716 billion mark as compared to Rs 102.336 billion at December-end, showing a raise of Rs 12.38 billion during January-March 2007.
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