Share of Islamic banking just 3pc


Share of Islamic banking is still hovering around three per cent of the total banking sector of the country which showed the Islamic banking has little chance to emerge as the parallel banking system in the country.

The State Bank research bulletin issued on Thursday termed the growth of Islamic banking as ‘rapid pace of growth’, but the details showed that neither the pace of growth matched with the growth in conventional banking, nor its share was improving to capture a bigger piece of cake.

The total banking assets of the Islamic banking increased from Rs118 billion in December 2006 to Rs136 billion in March 2007. However, its shares in terms of asset percentage of banking industry were just 3.2 per cent while comparing conventional banking assets.

The size of the conventional banking has been increasing rapidly for the last four years which left the Islamic banking far behind in the race for banking market.

In terms of deposits, Islamic banking share was three per cent of total banking deposits, though the size of deposits increased substantially during the last 15 months.

The deposit rose to Rs83 billion in December 2006 from Rs50 billion in December 2005. It further rose to Rs93 billion in the first quarter of 2007 till end of March.

The SBP research bulletin showed that the financing and investment was just 2.5 per cent of the total banking investment.

However, the growth of banking braches was significant while more full-fledged Islamic banks were coming to operate in the country. This indicates that there was potential of growth in this sector.

Number of full-fledged Islamic banks reached five from two at the end of 2005. At least 13 conventional banks have opened branches for Islamic banking while the total number of braches reached 170 from just 70 at the end of 2005.

Murabaha financing is almost 40pc of the total financing by the Islamic banking institutions as of the quarter ending March 2007.

Second most widely used mode of finance is Ijarah financing accounting for about 30pc of the total financing.

Growing interest in diminishing Musharakah is depicted representing 17pc of the total financing.

“The total number of borrowers increased by nine pc over the previous quarter,” said the SBP report. This was not encouraging for the growth of the Islamic banking.

The financial position of the Islamic banking industry is strong as depicted by the ratio analysis, said the report. The earning and profitability ratios have improved as compared to the last quarter, it added.

“The asset quality ratios reflect that the quality of financing has improved due to one per cent decrease in non-performing portfolios (NPPs) coupled with 12pc increase in provisions,” said the report.
( Courtesy by: Daily Dawn )


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