Islamic Banks See Dip in Deposits but Rise in Lending Amidst Liquidity Challenges

In the first quarter of 2024 (January-March), Bangladesh's Islamic banking sector experienced a mixed trend, with a slight decrease in deposits but positive growth in investments. However, remittances and foreign trade showed a downward tendency, according to a recent Bangladesh Bank report. As of the end of March, total deposits in Islamic banks reached BDT 479,935 crore, a decrease of BDT 1,256 crore from the previous quarter (October-December 2023). Despite this quarterly dip, deposits have increased compared to the same period last year. Islamic banks currently hold 23.62% of the total deposits in the country's banking sector. Conversely, investments or loans in this sector have grown, reaching BDT 526,889 crore by the end of March, an increase of BDT 1,818 crore from the prior quarter. Islamic banks account for 29% of the total investments in the national banking sector. During January-March, Islamic banks facilitated BDT 30,321 crore in exports and BDT 41,596 crore in imports. They also handled BDT 25,011 crore in remittances, representing 20% of the total bank sector's remittance inflow. Islamic Bank Bangladesh Limited maintains dominance in both deposit and investment activities within the Islamic banking sector. The report highlights liquidity shortages and challenges, noting that the sector is under some liquidity pressure, with surplus liquidity decreasing from the previous quarter. A lack of public confidence and weak asset quality are identified as key reasons for this pressure. To address the situation, Bangladesh Bank is providing emergency liquidity support to several banks. Recommendations for restoring stability include expanding rural branches, increasing lending to agriculture and small entrepreneurs, and boosting investment through profit-and-loss sharing mechanisms. Enhancing transparency, accountability, and governance to regain customer trust is also emphasized. Currently, Bangladesh has 10 full-fledged Islamic banks, with 17 conventional banks offering Islamic services through branches and 21 through windows. The total workforce in this sector at the end of March was 48,935.