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Bangladesh’s Islamic banking sector posted positive investment growth in the first quarter (January-March) of this year, despite a slight decline in deposits.
During the same period, export earnings, import settlements and remittance inflows handled by Islamic banks also declined.
However, Islamic banks maintained a strong position in the country’s overall banking system, holding nearly one-fourth of total deposits and almost one-third of total loans and investments.
The latest report by the Bangladesh Bank revealed that total deposits in the Islamic banking system stood at Tk 479,935 crore at the end of March, down Tk 1,256 crore from December.
Compared with the same period a year earlier, deposits increased by 8.35 percent. Islamic banks now account for 23.62 percent of total banking sector deposits.
Total investment and advances of Islamic banks rose to Tk 526,889 crore at the end of March, increasing by Tk 1,818 crore over the quarter. Islamic banking now represents 29.9 percent of the country’s total bank lending.
The report said the investment-to-deposit ratio (IDR) declined to 0.90 in March from 0.94 in December. Excess liquidity also fell slightly to Tk 19,204 crore. Although liquidity remained stronger than a year earlier, pressure on liquidity persisted during the quarter.
Bangladesh Bank attributed the pressure to deposit withdrawals from some Islamic banks, rising non-performing loans and weak assets, as well as limitations in Shariah-based short-term liquidity management.
To ease the situation, the central bank provided emergency liquidity support to several Islamic banks and initiated steps to introduce an Islamic interbank money market for more effective liquidity management.
The sector also recorded weaker performance in foreign trade. Export earnings through Islamic banks fell 3.84 percent quarter-on-quarter to Tk 30,321 crore, while import settlements declined 11.51 percent to Tk 41,596 crore. Remittance collection dropped 9.18 percent to Tk 25,011 crore, although Islamic banks still handled 20.54 percent of total remittance inflows into the country’s banking system.
Sector-wise investment data showed that large industries received the highest share of Islamic bank financing at 39.97 percent, followed by the trade sector with 33.12 percent. Agriculture, fisheries and forestry accounted for only 1.82 percent, while CMSME financing represented 7.43 percent.
Agricultural financing, however, recorded significant growth. Investment in the sector reached Tk 17,980 crore by the end of March, up by nearly Tk 2,640 crore from the previous quarter. Achievement against the agricultural financing target improved to 93.37 percent.
Growth also continued in green finance, women entrepreneur financing and Islamic microfinance. Green financing increased to Tk 19,772 crore, financing for women entrepreneurs rose to Tk 5,571 crore, and Islamic microfinance reached Tk 7,655 crore.
Bangladesh currently has 10 full-fledged Islamic banks operating 1,700 branches. In addition, 17 conventional banks run 49 Islamic branches, while 21 banks operate 976 Islamic banking windows, bringing the total number of Islamic banking outlets to 1,749. Employment in the sector increased to 48,935 by the end of March.
In its recommendations, Bangladesh Bank called for stronger governance, accountability and asset management to restore public confidence in the Islamic banking sector. It also urged banks to expand services in rural areas, increase financing for agriculture and small entrepreneurs, and promote genuine profit-and-loss sharing (PLS)-based investments.