Islamic Banking Industry

Economic Review, October 2011 | Go to article overview

Islamic Banking Industry


Overview

Islamic banking industry (131) continued to grow during the second quarter of CY 2011 with improved asset quality. By growing at 13 percent during the quarter, Islamic banking assets stand at Rs. 560 billion, constituting more than 7 percent share of overall banking industry's assets (see Table 1). In terms of deposits the industry share of IBI increased from 7.3 percent to 7.6 percent during the quarter under review. Significant positive developments of the quarter were record profit of the industry, drop in nonperforming financing (NPF) and improved leveraging of capital base. The ROA and ROE of the Islamic banking industry at 1.6 percent and 16.5 percent for the first time surpassed the overall banking system averages of 1.4 percent and 14.4 percent respectively.

Table 1: Industry Progress and market share

               Islamic  Banking   Industry          Growth
                        Progress                    (YoY)
               Jun-10    Mar-11    Jun-11   Jun-10  Mar-11  Jun-11

Total Assets       411       497       560   31.3%   33.9%   36.3%

Deposits           330       398       452   38.5%   37.7%   37.1%

Net Financing      236       374       420   21.5%   63.5%   78.3%
& Investment

Total Islamic       19        17        17       -       -       -
Banking
Institutions

Total No. of       667       759       799       -       -       -
Branches*

               Share   Overall   Banking
                 in    Industry
               Jun-10   Mar-11   Jun-11

Total Assets     6.1%      6.9%     7.3%
Deposits         6.4%      7.3%     7.6%

Net Financing    4.6%      6.7%     7.0%
& Investment

Total Islamic       -         -        -
Banking
Institutions

Total No. of     6.9%      7.9%     8.3%
Branches*

Source: Quarterly Unaudited Accounts

* number includes sub-branches

[ILLUSTRATION OMITTED]

IBI Network Expansion

The branch network of Islamic banking industry has expanded to 799 branches showing an increase of 40 branches during March 2011-June 2011. The growth in branch network during the quarter under review is higher compared to the last quarter. However, total branch expansion (48) over the first half of the year (Jan 2011-June 2011) reflects completion of only 33 percent of the approved plan of 144 new branches for CY 2011. This is in line with the usual trend where branch expansion remains relatively slow during second half of the year as development of physical infrastructure requires between 6 to 9 months.

About 63 percent of the branch expansion during the quarter came from Islamic branches of conventional banks. Amongst the conventional banks, Faysal Bank was the major contributor with an addition of 23 branches during the quarter. Among full-fledged Islamic banks Dubai Islamic Bank and Meezan Bank expanded their network by 9 and 5 branches respectively.

Province wise data indicates that Punjab not only has the highest number of branches but also dominates with respect to addition of new branches (see Table 2). About 78 percent of branches are concentrated in Punjab and Sindh whereas Khyber Pukhtoonkhawa (KP) and Baluchistan house 10 percent and 5 percent of the Islamic banking industry. This regional distribution is in line with the distribution of branch network of the overall banking system. Further, five big cities (federal capital along with four provincial capitals) have almost 57 percent of Islamic banking branches (IBB) and out of new 40 branches during the quarter ending June 2011, 25 branches were set up in the mentioned five cities. The geographical dispersion of the branches would improve gradually as the industry grows and spreads its network to 2nd, 3rd tier cities.

Table 2: Province Wise Additional Branches (June 2011)

Province            Additional No.  Total No.  Share (percent)

Punjab                          16        356               45
Sindh                           11        268               34
Khyber Pakhtoonkwa               7         83               10
Balochistan                      1         37                5
GilgitBaltistan                Nil          1                0
FATA                             1          1                0
Federal Capital                  4         43                5
AJK                            Nil         10                1
G. … 

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