Home Islamic Islamic banks profit up by Rs34 billion in Oct-Dec 2018

Islamic banks profit up by Rs34 billion in Oct-Dec 2018

Observer Report


Islamic banking industry posted gross profit of Rs34 billion in the last quarter of 2018, compared with Rs23 billion in the corresponding period a year earlier, the State Bank said, as higher growth in financing helped boost earnings of Islamic banks.
The State Bank of Pakistan, in its Islamic banking bulletin for October-December 2018, said profitability ratios like return on assets and return on equity of the Islamic banks were recorded at 1.4 percent and 22.3 percent, respectively at the end of the quarter.
Bankers attributed increase in the profitability of the Shariah-complaint lenders to growing demand for long-term and short-term financing and improved client awareness of Islamic finance.
“There is increasing demand for Diminishing Musharaka instruments, contract to help customers finance home buying,” a banker said. “Islamic banks’ advance-to-deposit ratio (ADR) is 50-70 percent, while conventional banks hold the ADR of 40 percent, indicating that the Islamic financial institutions are aggressively lending to the businesses and consumers.”
“In terms of financing mix, Diminishing Musharaka was the leading mode of financing followed by Musharaka and Murabaha,” the SBP’s Islamic banking bulletin said. In terms of sector-wise financing, production and transmission of energy and textile remained two leading sectors. Their share in overall financing of Islamic banking industry was recorded at 17.7 percent and 13 percent, respectively by end of December 2018
The SBP’s report stated that asset base of the Islamic banks continued to increase amid higher growth in net financing and investments. Deposits at Islamic banks reached Rs2.203 trillion at the end of December, compared with Rs1.885 trillion in the corresponding quarter of 2017. Market share of Islamic banking assets and deposits in the overall banking industry was recorded at 13.5 percent and 15.5 percent, respectively by December.
Net investments of Islamic banking industry fell to Rs515 billion during October-December 2018, from Rs535 billion in the previous quarters. Asset quality indicators of Islamic banking industry, including non-performing finances (NPFs) to financing (gross) and net NPFs to net financing were registered at 2.4 percent and 0.4 percent, respectively by end of December 2018.