September 14, 2020 (MLN): The highlight of the Islamic Banking Bulletin issued by State Bank of Pakistan (SBP) was the outstanding growth of Islamic Banking Industry (IBI) as its market share upswings to 15.3% and 16.93% in assets and deposits of overall banking industry respectively during Apr-June 2020.

As per Bulletin, during the quarter under review, the asset base of the Islamic banking industry (IBI) grew by 8.1% to stand at Rs 3,633 billion from Rs3,360 billion while deposits of IBI stood at Rs 2,946 billion from Rs 2,692 billion depicting quarterly growth of 9.5%. The YoY growth was recorded 21.4% and 22% for assets and deposits, respectively as during Apr-Jun 2019, the assets and deposits stood at Rs 2,992 billion and Rs 2,415 billion respectively.

The growth in deposits largely came from customer deposits of varied kinds, particularly, non-remunerative current accounts and saving deposits. Further, this growth in deposits of IBIs is also in line with overall banking industry trends.

 Similarly, ‘financing & investments (net)’ recorded a quarterly growth of 15.5 percent and reached Rs 2,597 billion, whereas, the YoY growth was 20.8 percent.

Moreover, at the end of reporting period, profit before tax of IBIs stood at Rs 49 billion.

The QoQ increase of Rs 273 billion or 8.1% in assets of Islamic Banking was a significant growth compared to the corresponding increase of Rs 202 billion (7.2%) during 2019.

Net Financing & Investments constituted the lion’s share (71.5%) in total assets of the Islamic banking industry (by end of June 2020), though lower when compared with the overall banking industry’s share (80.3%) during the period under review.

According to SBP, the respective share of net financing and investments in total assets of IBIs was 46.7% and 24.7%. Both financing and investments increased by 3.9% and 46.3% respectively, as opposed to a deceleration of 1.8% in investment and a growth of 1.3% in financing during the corresponding period of 2019

Furthermore, at the end of June 2020, net investments of IBI increased considerably to the tune of 46.3% (Rs284.6 billion) and were recorded at Rs 899.2 billion compared to a deceleration of 1.8% in corresponding period of 2019. This increase in investments is mainly owing to issuance of GoP Sukuk of Rs198.2 billion during the period under review.

Similarly, net financing & related assets of IBIs jumped by 3.9% (Rs63.6 billion) to Rs1,698 billion (YoY: 9.9%), higher when compared with the growth of 1.8% during the corresponding period of 2019.

In terms of mode wise financing, the share of Diminishing Musharakah remained the highest in overall financing of Islamic banking industry with a share of 31.2%, followed by Musharakah (21.3%) and Murabaha (13.4%).

With regards to sector wise financing, ‘production & transmission of energy’ retained its leading position with a share of 14.7% in overall financing of Islamic banking industry, followed by ‘textile’ (14.2%) and ‘individuals’ (9.5%) at the end of June 2020.

This trend was similar in the corresponding period of 2019. Furthermore, this trend of sector wise financing made by IBIs is in line with the overall banking industry, the document revealed.

Review of client wise financing reveals that corporate sector had the substantial share and accounted for 71.9% in overall financing of Islamic banking industry, followed by commodity financing and consumer financing with share of 14.3% and 9.2%, respectively.

Speaking of profitability ratios of the IBIs, the Bulletin revealed that return on assets (ROA) and return on equity (ROE) before tax stood at 2.9% and 42.2% respectively at the end of June 2020,comparatively higher than ROA and ROE before tax of 2.3% and 35.3% during the same period in last year. Moreover, the earnings ratios of IBIs remained quite higher than those of overall banking industry’s ratios of 1.9 and 25.2% respectively by the end of June 2020.

During the period under review, operating expense to gross income of IBIs was recorded at 44.9%, which was an improvement from 47.4% recorded in the preceding quarter; whereas, operating expense to gross income of overall banking industry was recorded at 48.9%.

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