KARACHI, Nov 9: Islamic banking which is still 3.2 per cent of the banking sector in terms of assets accelerated its growth during the first quarter and moved with a rate of 15 per cent, said a State Bank report.

Latest report in Islamic Bulletin issued by the SBP, covering Islamic banking industry’s performance during December-March, said the total assets portfolio in the Islamic banking sector expanded by 15 per cent to Rs135.641 billion in March from Rs118.183 billion in December 2006.

The report said deposits of the Islamic banking industry increased by Rs10 billion to Rs93 billion and reached three per cent of the total banking deposits in the country.

The growth in assets and deposits would be encouraging for those who believe that the Islamic banking could be a parallel banking system against the conventional banking.

However, some analysts believe that pace of growth would never make the Islamic banking a parallel system, mainly because conventional banking has been growing much faster than the Islamic banking for the last four years.

The SBP report said Islamic financings constituted 52pc of the total assets and stood at Rs69.993 billion in March 2007 as compared to Rs65.137 billion at the end of December 2006, showing an increase of seven per cent.

It further added that there was a substantial increase in “Balances with other banks”. Balances held by Islamic banking institutions at the other banks increased by 35pc to Rs22.192 billion from Rs16.383 billion, mainly due to introduction of new players in the market , increased liquidity with IBIs and non- availability of Shariah compliant government securities.

Islamic banking sector’s equity increased by 32pc to Rs20.925 billion as on March 2007 from Rs15.847 billion at the end of December 2006.

The report found several reasons for the increase in equity. It said a new full-fledged Islamic bank started its operations in February 2007 by the name of Emirates Global Islamic Bank Pakistan contributing to an increase in equity by Rs2.895 billion. The minimum capital requirement for conventional banks also applies to Islamic banking institutions in Pakistan because of which the equity of Islamic banking institutions has increased in the first quarter of 2007, the report added.

The report said the un-appropriated and un-remitted profit as at the end of quarter (March 2007) increased by 14pc to stand at Rs860 million in comparison to the previous quarter’s figures of Rs756 million.

However, the most important factor was noted as the rapid increase in the branch network of the Islamic banks and conventional banks.

“The Islamic banking sector continued to grow at a rapid pace which is reflected by the increasing branch network of the Islamic banking institutions,” said the SBP bulletin.

During the quarter, 20 new branches became operational to make the total branch network as 170 till March 2007.

Five full-fledged Islamic banks were operational while 13 conventional banks were dealing in the Islamic banking with their branches.