The sector-wise concentration of IBIs financing is largely in line with concentration pattern of the banking system as a whole except chemicals & pharmaceuticals and ‘individuals’ where the IBIs have about 9.9 per cent and 18.8 per cent of their financing respectively compared to 4.3 per cent and 12.5 per cent for the banking system. Though no major change in the concentration patterns was witnessed during the quarter, there was some shift from textile and individuals to chemicals & pharmaceuticals, energy and cement during the last 12 months (Sep. 09 to Sep. 10). Further, the IBIs have negligible presence (of less than 1 per cent) in Agribusiness compared to 6.1 per cent of the banking system. The absence of IBIs in agribusiness is primarily attributable to concentration of IBIs branch network in big cities, limited understanding of IBIs about the sector and very few products offerings. With financial inclusion an important objective of SBP, it has been encouraging IBIs to venture into this largely untapped sector that has huge growth potential for banks including IBIs.
During the current quarter the IBIs investment rose by 3.5 per cent on QoQ basis. More importantly, the YoY increase is a healthy 24.8 per cent. The major contributor to the quarterly growth is a massive revaluation gain of 157.8 per cent. These revaluation gains are counter intuitive in an increasing benchmark interest rates scenario—that results in revaluation losses on already acquired (fixed income) assets that yields less than the market rate. However, the inclining trend in the equity markets seems to have over-compensated the capital losses on fixed income investments. Except for the investment in federal government securities—that is stagnant QoQ—all investments categories have shown both YoY and QoQ rise. Nonetheless, SBP and other stakeholders, both domestic and global, are exploring new avenues for investments wherein IBIs can place their surplus funds and utilize their resources effectively and efficiently to optimize returns to depositors.
The IBIs deposits though grew by just 3 per cent during the quarter, the YoY growth was healthy 38 per cent. The slower growth in deposits during the quarter could be attributed to recent floods and Eid related withdrawals in September 2010.
Consequently, similar pattern is exhibited in the YoY growth of fixed and saving deposits which stood at 37 per cent and 40 per cent respectively while the QoQ basis growth of fixed and saving deposits is 4 per cent and 8 per cent. Further, the deposits of financial institutions has increased on YoY basis by 47 per cent but a declining trend was noticed on the QoQ basis which can be attributed to the fact that the IBIs are shifting their institution’s deposit to the interbank placements. In terms of the currency denomination, the increase in deposits was mainly due to increase in the local currency deposits, which constituted around 40 per cent while the foreign currency deposits increased by around 9 per cent.
The maturity profile of IBIs is showing that there exists a mismatch in the assets and liabilities of different tenors. The asset-liability share gaps shows that IBIs are more liquid in shorter tenors compared to the market—more liabilities and less assets up to 1-year. This is not surprising and amply reflects IBIs difficulties/cautious approach in asset acquisition. Against a branch expansion plan of 247 branches for the whole year 2010, the yearly branch expansion stood at 35 branches, implying that more than 200 branches should be added to meet the target. The substantially slower pace of branch expansion can be attributed to the global financial markets’ meltdown and deterioration in domestic economy that have possibly adversely affected expansion plans of banking institutions.
IBIs seem to be looking to consolidate and stabilize the existing size in short term gives a summary of branch network of Islamic banking in Pakistan. During the quarter ended September 2010, Islamic banks have increased their branches by 21, while the conventional banks’ Islamic banking branches rose by only 14—though much of the future growth is expected to come from conversion of the conventional bank branches to Islamic banking branches. Nonetheless, the trend of change of status of sub-branches to branches continued with 18 such upgrades. The province-wise distribution of branches is heavily concentrated in Punjab and Sindh with the quarterly increase in branches also confined primarily to these two provinces. While in the rest of the provinces, no additional branch was opened. There is a single branch increase in federal capital. The city-wise distribution is primarily concentrated in urban centers with almost half of the branches in Karachi and Lahore.