Non-Performing Financing (NPF) of Islamic banks registered a massive increase of 38 percent during the last calendar year - 2010 mainly due to economic slowdown. "The phenomenal surge in the NPF is a caution for growing Islamic banking industry and requires attention of the leading players," bankers said.
Although, Non-Performing Loans (NPLs) of conventional banking are on the rise but in terms of percentage, NPF of Islamic banks posted more increase as compared to NPLs of conventional banking, they added. "This surge is an eye-opener for the industry leaders and it is high time that they take strong measures to check the rising trend in NPF, they said. They added, "Islamic banking industry needs to review its financing policies and further tighten the rules/criteria."
The State Bank of Pakistan has revealed that Year on Year (YoY) growth in NPF of Islamic banking institutions is significantly high as it stood at 38.2 percent. NPFs have increased to Rs 13.8 billion as on December 2010 from Rs 10 billion as on December 2009, depicting a surge of Rs 3.8 billion.
However, the quarter on quarter shows that the pace of growth in NPF has slowed down significantly during October-December 2010 quarter. Growth in NPF reduced to just 2.4 percent in October-December of 2010 as compared to almost 27 percent during September end quarter. In terms of volume, NPF increased marginally during the quarter to Rs 13.8 billion from Rs 13.5 billion as at the beginning of the quarter.
Provisions have posted an increased of 57 percent to Rs 8.1 billion in December 2010 against Rs 5.17 billion in December 2009. After provisioning with an increase of 18.4 percent, net NPF mounted to Rs 5.721 billion from Rs 4.83 billion. Moreover on YoY basis the amount of recovery has also increased by 58.1 percent to Rs 1.25 billion as compared to last years'' figure of Rs 0.8 billion.
According to the SBP, the assets of the Islamic banking industry have increased to Rs 477 billion in December 2010, which translates into 6.7 percent market share, posting an increase of 30.2 percent on YoY basis. In addition, on YoY basis the deposits of the Islamic banking industry posted an increase of 38 percent to Rs 390 billion, equivalent to 7.2 percent market share. The branch network of Islamic banks has surged to 751 branches, posting an increase of 100 branches on YoY basis.
While Islamic banking financing portfolio shows that Murabaha based financing further strengthened its dominance in IBIs portfolio with almost three percentage points increase in its share in the total portfolio of Islamic banking industry. Sector-wise distribution of Islamic banking institutions'' financing portfolio revealed that the largest share of financing went to textile sector, which stood at 22 percent, followed by 17 percent to individuals and 7 percent to chemical and pharma sectors in comparison to the industry average of 19 percent, 12 percent and 3.9 percent, respectively for these sectors.
Financing to production and transmission of energy and cement sectors constituted 7 percent and 4 percent of total Islamic banking financing portfolio, respectively as compared to the industry average of 9 percent and 3 percent. The financing to the energy and cement sectors witnessed significant growth during the year as their share in the financing portfolio increased by 3 and 2 percentage points respectively to 7 percent and 4 percent.