KARACHI: Islamic banking industry grew by nearly seven per cent during the second quarter of the calendar year 2013. The momentum in growth, however, started weakening due to increasing base, said Islamic Banking Bulletin of the State Bank issued on Monday.

The report said the asset base of the industry reached Rs903 billion, registering year-on-year growth of 27pc, while deposits grew by 28pc to reach Rs771bn by the end of June 2013.

The report said the share of federal government securities in overall investments remained highest contributing more than 71pc in investment portfolio of Islamic banking industry.

Similarly, market share of both assets and deposits increased during the quarter under review and reached 9pc and 9.9pc, respectively, in overall banking industry.

Profit of the Islamic banking industry reached above Rs4.3bn by the end of June 2013 from Rs2.2bn by the end of March 2013, though lower compared to Rs5.9bn profit registered during June 2012, said the bulletin.

According to the report, the asset base of the Islamic banking industry crossed Rs900bn as it reached Rs903bn by the end of June 2013 from Rs847bn in the previous quarter. Islamic banking institutions’ share of assets in overall assets of the banking industry also increased to 9pc from 8.7pc in the last quarter.Increase in assets was contributed by investments and financing, the two major components of assets, though growth in financing (10.4pc) was higher compared to growth in investments (2pc). Consequently share of investments in overall asset portfolio declined below 50pc to reach 48.6pc by the end of June 2013 compared to 50.8pc in the previous quarter.

Investments of Islamic banking industry registered quarterly growth of 2pc reaching Rs438bn by the end of June 2013 compared to Rs430bn by the end of March 2013.

This growth rate (2pc) is, however, lower than 9.1pc growth witnessed by investments in previous quarter, mainly due to non-issuance of Islamic bonds (Ijara Sukuk) during the period under review.

Despite no issuance of Ijara Sukuk, federal government securities still registered quarterly growth of 2.3pc, reflecting purchase of Sukuk in the secondary market by Islamic banking institutions from conventional banks.

During the quarter under review, non-performing financing (NPF) of Islamic banking industry witnessed a slight decline and was recorded Rs19.4bn compared to Rs19.5bn in the previous quarter.

The decline in NPFs was mainly contributed by the category of “doubtful” that declined by 18pc during the quarter ending June 2013.

However, given that “loss” category witnessed an increase during the same period, it implies that this may be due to the fact that a part of the nonperforming financing that was earlier considered to be “doubtful” is now being categorised as “loss”.

“Asset quality indicators are lower than overall industry ratios, indicating relatively better asset quality of Islamic banking institutions,” said the report.