Pakistan's Islamic banking

Everyone in Pakistan is pleasantly amazed over the fast-track popularity of Islamic banking, latest reports show.
Add to this the success story of Dubai Islamic Bank of Pakistan. The market share of Islamic bank deposits rose to 13.2 per cent from 12.9 per cent a year ago in the overall conventional and Islamic banks of Pakistan.
The diminishing musharaka is the top mode of financing followed by murahaba, according to an analysis of Islamic banking business volumes and the number of their transactions.
Pakistan's the industrial sector was the biggest borrower. The other principal borrowers were the electrical sector, which is building transmission lines network, meant to overcome the ongoing energy crisis; and textiles, which is the country's biggest industry, forming 60 per cent of its industrial sector, employing 40 per cent of its entire industrial labour force and is the biggest exporter and dollar earner for Pakistan.
The State Bank of Pakistan, the central bank, had reported Islamic banks' latest growth statistics; assets rose to Rs1.885 trillion during the January-March quarter of 2017, up 16 per cent from Rs1.65 trillion in the same period of 2016. It indicated an increase of 16 per cent, on the back of "increased financing of the private sector".
The popularity of Islamic banking is also confirmed by the fact that "the market share of Islamic banking assets rose to 11.7 per cent during January-March 2017 compared to 11.4 per cent in 2016... The increase in the assets was mainly contributed by financing, which witnessed a growth of 12.4 per cent during the quarter under review."
However, the same quarter saw investments of Islamic banks recording a downturn of 0.3 per cent. This is linked with the fact that no sovereign domestic sukuk was issued since March 2016.
But there is yet one more good news: the period recorded financing-to-deposits ratio of Islamic banks at 59 per cent as at January-March, up from 52 per cent in the same period of 2016. Deposits rose to 17.1 per cent year-on-year to total Rs1.564 trillion in January-March 2017, up from Rs1.336 trillion in January-March 2016.
Who were the big borrowers?. The electricity production and transmission sector received 15.4 per cent of financing, while textiles followed with 13.2 per cent. The corporate sector took 74.8 per cent, and consumer financing was 10.3 per cent. Credit to small and medium businesses and farming was somewhat lower compared to the same period of 2016.
As Islamic banks get into full gear and their operations and business quality improves, their ratings too are rising. The latest bank to receive this honour is Dubai Islamic Bank Pakistan Limited (DIBPL), whose entity ratings have been upgraded by JCR-VIS Credit Rating Company from 'A+/A-1' to 'AA-/A-1' with a stable outlook.
"The ratings assigned to DIBPL are driven by improvement in key performance areas and strong profile of its sponsors," a spokesman of the ratings agency told Khaleej Times.
"Our bank pursued a consolidation strategy during 2016, which has resulted in a significant improvement in financing and the deposit mix. Asset quality indicators of our bank compare favourably to peers," a DIBPL spokesman told Khaleej Times.
"DIBPL profit before tax rose by a whopping 93 per cent during 2016 on the back of improvement in the core profitability. The ratings are underpinned by the projected growth in profitability, improved efficiency and sustained asset quality indicators," the spokesman said.
The shinning star of Islamic banking, DIBPL, is a wholly-owned subsidiary of Dubai Islamic Bank of the UAE. It was established in 1975 as the world's first Islamic bank in the UAE. With group assets of $50 billion, a market capitalisation of around $7 billion and workforce of more than 8,000, the bank is fast being recognised as a "formidable force in Islamic finance and one of the most progressive Islamic finance institutions in the world. DIB currently has its presence across all emirates in the UAE, with growing international operations in South Asia, Far East, the Middle East, Europe and Africa."
With such a shining record of DIB, as well as all the Islamic banks in Pakistan, what are analysts saying about its future growth?
"It will go up and up."

source: Khaleejtimes