KARACHI: The Islamic banking industry invested Rs155 billion in the government papers during the January-March quarter, said a State Bank of Pakistan’s (SBP) report issued on Monday.

The industry’s assets and deposits were recorded at Rs1.625 trillion and Rs1.336tr, respectively, by the end of March, according to SBP’s Islamic Banking Bulletin for January-March. The market share of Islamic banks’ assets and deposits in the overall banking industry stood at 11.4 per cent and 12.9pc, respectively.

Assets of both Islamic and the overall banking industry grew almost at the same pace (1pc) during the quarter under review.

However, Islamic banks chose the same path for growth as did the conventional ones.

The bulk of their liquidity was invested in government papers and the trend seems to be continuing.

Net investments of Islamic banks rose by Rs155bn to reach Rs586.9bn by the end of March compared to Rs431.9bn by end-December.

“This increase in investments was mainly contributed by investment in federal government securities as it recorded a growth of 35.8pc during the quarter,” said the SBP’s bulletin report.

The government issued Ijara sukuk (Islamic bonds) of Rs 80.4bn during the quarter. As a result, investments-to-deposits ratio of Islamic banks reached 43.9pc by end-March compared to 31.4pc by end-December.

Islamic banks are more eager to invest in government papers compared to Islamic banking branches of conventional banks.

The break-up of investments among Islamic banks and windows shows that former’s investments increased 52pc (Rs107.5bn) during the quarter under review compared to the increase of 21pc (Rs47.5bn) in investments of Islamic banking windows.

The government’s borrowing strategy has destroyed the banking as an engine for the growth of Pakistan’s economy as their participation for development of economy reduced to extremely limited level.

In contrast, banks in all developed and developing economies have a key role behind the growth.

The Islamic banking industry drives most of its profits from investing in government papers. The combined after-tax profit of the industry during January-March 2016 stood at Rs2.9bn. Of this, Rs1.7bn was earned by Islamic banks and Rs1.2bn by the Islamic banking divisions of conventional banks.

In line with general trend, operating expense to gross income of the Islamic banking industry remained higher than that of overall banking industry, said the SBP report.

The report said the branch network of the Islamic banking industry stood at 2,082 branches (including sub-branches) by the end of March. Punjab and Sindh collectively account for nearly 79pc of the branch network.

In terms of cities, 56pc branches of the Islamic banking industry are centred in five cities — Karachi, Lahore, Rawalpindi, Islamabad and Faisalabad. The number of Islamic banking windows operated by conventional banks having Islamic banking branches stood at 1,064 by end-March compared to 1,050 by end-December.

Published in Dawn, June 21st, 2016