The profitability of Islamic Banking Industry (IBI) has posted a notable growth of 45 per cent during the first quarter of this calendar year (CY14) mainly due to declining non-performing financing of the industry.
According to the State Bank of Pakistan (SBP), the profitability of the IBI has surged to Rs 3.2 billion Jan-March 2014 compared to Rs 2.2 billion by in the same period of the last calendar year (CY13), depicting an increase of Rs 1 billion.
The profit during the first quarter of the CY14 is also higher than the last quarter (October-December) of CY13, in which the industry's profitability stood at Rs 2.61 billion.
Among the indicators of earnings and profitability both return on equity (ROE) and return on assets (ROA) increased compared to previous quarter mainly due to lower Non-Performing Financing (NPF) of the Islamic banking industry.
The assets of IBI registered a moderate growth of 0.2 per cent during Jan-March quarter 2014 to reach Rs 1.016 trillion up from Rs 1.014 trillion in the previous quarter. However, the market share of Islamic banking assets in overall banking industry decreased during the quarter under review as the assets of overall banking industry grew at a faster pace (some 2.0 per cent) compared to (0.2 per cent of) Islamic Banking Industry.
Further analysis of assets reveals that both investments and financing, the major components of assets, registered decline during the first quarter of the CY 14.
The investments of the IBI continued to decline during the first quarter of CY14 and stood at Rs 354 billion in March 2014 down from Rs 394 billion by end December 2013. One of the major reasons for this decline in investments is non-availability of any new Government of Pakistan Ijara Sukuk since March 2013 that has generally remained the main investment option for Islamic Banking Industry; Federal government securities witnessed a decline of 9.8 per cent during the review quarter.
On the other hand, the market share of Islamic banking industry's deposits in overall banking industry increased during the quarter ending March 2014 and reached 10.7 per cent compared to 10.4 per cent in December 2013. Deposits of the Islamic banking industry also increased during the review quarter to reach Rs 872 billion.
Among asset quality indicators, non-performing financing (NPF) of Islamic banking industry decreased during the first quarter of CY14 resulting in an increase in both return on equity (ROE) and return on assets (ROA) compared to previous quarter.
In line with the general trend during the first quarter of any calendar year, the branch network of Islamic Banking Industry witnessed moderate increase. The branch network reached a cumulative number of 1,314 with an increase of 10 branches during the first quarter of CY14.
Importantly, the number of Islamic banking institutions increased during the quarter, as Summit Bank Limited started Islamic banking operations after obtaining license and necessary approval from the SBP.
However, with more than 75 per cent concentration of Islamic banking branch network in two provinces (Punjab and Sindh) and 56 per cent concentration in 5 big cities (Karachi, Lahore, Quetta, Peshawar and Islamabad), smaller provinces in conjunction with second and third tier cities still remain under serve.
The bifurcation of assets among full-fledged Islamic Banks (IBs) and Islamic Banking Divisions (IBDs) of conventional banks reveals that the assets of IBs increased whereas the assets of IBDs declined during the review quarter compared to previous quarter. Consequently, the share of assets of IBDs in overall assets of Islamic banking industry witnessed decline as they decreased from 37 per cent in December 2013 to 36 per cent in March 2014.
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