KARACHI: Despite recording a double-digit growth in its assets under strong government encouragement, Islamic banking institutions (IBIs) reached 11.7 per cent of total asset base of the banking industry by end of calendar year 2016, far below the target of 15pc by 2018 set by the State Bank.

IBIs’ assets reached Rs1,852.9bn registering a slight increase from 11.38 per cent in the previous year.

The central bank appreciated the performance of the Islamic banks, but said that given the current gap and moderate pace of growth in share of Islamic banking industry, achievement of the 15pc target by 2018 seems challenging.

The SBP’s five-year Strategic Plan for Islamic Banking industry (2014-18) targets 2,000 branches and 15 per cent share of the overall industry by end of 2018. The branch expansion target has been exceeded by 247 branches to 2,322 in CY16.

The report said that in terms of growth in financing, IBIs’ have fared well; their financing growth of 27.21 per cent has been higher than conventional banks’ 12.17pc.

However, Islamic banking industry argues that their investment opportunities have drastically reduced compared to conventional banks.

“We could grow aggressively if the Sukuk (Islamic bonds) were available. We have ample money but fewer opportunities available for investment,” said President and CEO of Meezan Bank Irfan Siddiqui.

“We are actually discouraging deposits these days since we have nowhere to invest. The government has promised to sell more Sukuk in coming days,” he added.

Mr Siddiqui said the Islamic banks have invested 65pc in corporate sector and only 35pc in the government papers.

The private sector has remained the major recipient of IBIs financing as outstanding financing to private sector has been recorded at Rs719.7bn, according to the State Bank report. Textile and the power sector are the major users of IBIs financing. However, these sectors also expose IBIs to concentration risk, noted the report.

The total assets, investments (net), financing (net) and deposits of IBIs have increased by 15.09pc, 13.45pc, 27.21pc and 14.44pc, respectively, during CY16.

“This growth may seem modest as compared to the previous year, but the results are still encouraging as compared to conventional banking industry,” said the report.

The IBIs have outperformed conventional banks in mortgage financing which has registered a growth of 28.98pc compared to 16.05pc by conventional banks.

IBIs focus on financing side is also evident from their vinancing to deposit ratio (FDR), which at 52.17 per cent, is well above the conventional banks’ average ADR of 45.75 per cent.

Published in Dawn, July 14th, 2017