KARACHI, March 13: Both the assets and deposits of the Islamic banks showed positive growth but the rise of non-performing financing diluted the achievements during the third quarter of the calendar 2012, said the Islamic Banking Bulletin issued by the State Bank on Wednesday.

“During the quarter under review, non-performing financing (NPF) of Islamic banking industry continued to increase and reached Rs18.9 billion indicating quarterly (QoQ) growth of 3 per cent,” said the report.

The rising trend of NPFs was mainly contributed by the category of “Loss” that reached Rs13.3 billion during the quarter under review; more than 70 per cent of overall NPFs, added the report.

The NPF under the category of “doubtful” also witnessed an increase during the quarter as it grew by 55.6 per cent to reach Rs2.9 billion by end September 2012 from Rs1.9 billion by end June 2012.

The rising trend in NPFs resulted in increased provisions as provisions to NPFs reached 63.7 per cent compared to 59.5 per cent in the previous quarter.

According to the Bulletin both assets and deposits registered positive quarterly growth as asset base of the industry reached to Rs742 billion while deposits reached to Rs628 billion by end September 2012.

In terms of market share, assets constitute 8.1 per cent whereas deposits constitute 9.3 per cent in overall banking industry.

The report said the rising trend in profitability of the Islamic banking industry continued and reached above Rs7.7 billion by end September 2012 from Rs6 billion by end June CY12.

On the other hand return on assets (ROA) and return on equity (ROE) witnessed decline during the quarter under review.

“Rising NPFs to financing ratio, concentration of financing in few sectors and limited expansion of Islamic banking network to second and third tier cities remain among major challenges faced by the industry,” said the State Bank report.

Asset base of Islamic banking industry reached to Rs742 billion by end September 2012 from Rs711 billion in the previous quarter, though IBIs share in overall banking industry declined marginally to 8.1 per cent from 8.2 per cent in the corresponding period.

This was mainly due to relatively better growth in assets of overall banking industry which grew by 5.3 per cent during July-Sept quarter compared to 4.3 per cent growth in assets of Islamic banking industry during the same period.

The share of investments in overall asset portfolio surpassed 50 per cent by end September 2012. On the other hand, financing, the other major component of the asset mix, registered ‘no growth’ during the quarter under review and remained unchanged at Rs197 billion, similar to end June 2012.

Investments of Islamic banking industry registered quarterly growth of more than 8 per cent reaching Rs374 billion by end September 2012. This rise in investment was mainly driven by increased investment in Federal government securities as GoP Ijara Sukuk of more than Rs47 billion were issued during the quarter.

“The share of federal government securities in overall investments increased to nearly 71 per cent by end of the quarter,” said the report.

The report said that in line with overall industry trend, financing extended by IBIs is mainly concentrated in the textile sector.

However during the quarter July to September, share of textile witnessed a decline which is in line with the usual trend witnessed by the sector during third quarter of calendar year, it added.