KARACHI, Oct 9: Islamic banking industry’s high credit to deposit ratio has exposed the industry to a fairly high degree of credit risk, says a State Bank report on Islamic banking.
“Due to the dominant position of advances on asset side, the credit to deposit ratio was 82.15 per cent, a high credit to deposit ratio exposes the industry to a fairly high degree of credit risk,” said the SBP Islamic Banking Bulletin report.
While the growth in the conventional banking is unexpectedly high, which yielded very high profit up to 99 per cent, the Islamic banking showed a growth much below the expectation.
However, the SBP report showed a positive approach towards the growth in the newly-born Islamic banking.
“The Islamic banking sector continued to grow which is reflected by the increasing branch network of the Islamic banking institutions,” said the report. Six Islamic banks with 65 branches and commercial banks with 45 branches are operating in the country.As of June 2006, the advance to deposit ratio of Meezan Bank was 86.44 per cent, while the same for Bank Islami was 165 per cent.
The SBP report said the total assets portfolio in the Islamic banking sector expanded by 0.59 per cent to Rs89.350 billion in August 2006 from Rs88.828 billion in July 2006. The report said that deposit liabilities increased by 1.56 per cent to Rs62.188 billion at the end of August from Rs61.231 billion in July 2006.
“Profit for August increased by 1.42 per cent to stand at Rs1.042 billion as compared to the last month’s Rs1.027 billion,” said the report. The SBP said the balance sheet footing of the Islamic banking industry kept on increasing. Advances as a percentage of total assets have increased by a nominal percentage. Total assets had increased due to substantial increase in other assets, it said.
Islamic banking sector equity and fund increased by 0.14 per cent to Rs12.591 billion from Rs12.574 billion.
However, there is a difference of opinion among banking experts over the growth of the Islamic banking. The promoters of the Islamic banking believe that the growth was satisfactory and they see a vast potential in it. Some other experts also believe that there is vast potential in the Islamic banking, but they argue that the growth was not satisfactory.
“Growth in Islamic banking is not satisfactory in Pakistan but the potential and scope for growth is very high,” said an analyst.
Analysts said big foreign banks like Citibank, Standard Chartered and others had been aggressively marketing the potential of Islamic products. The foreign banks have set up the Shariah Committee to take advice before launching of an Islamic product.
Recently Japan Bank for International Corporation set an advisory committee and hinted at launching Islamic products by the beginning of next year. A member of the committee earlier said JBIC might launch Islamic products in Pakistan in February 2007.
“It all showed the potential but I think the foreign banks would be in a better position to tap the Islamic banking resources as they are much more skilled than the newly-born Islamic banks,” said the analyst.
