Deposits, investments in Islamic banks keep declining

Confidence in Islamic banking is declining after massive lending malpractices in Bangladesh.

From deposit to investment, and even in case of wage earners' remittance, the Shariah-based banking operations keep losing their share in recent months, which becomes a matter of concern particularly to a section of unconventional bankers.

According to Islamic banking-related statistics of Bangladesh Bank, the country's central bank, Islamic banking held 23.86% of the entire deposit portfolio within the country's banking system, as of December 2023.

On a slide, the share came down to 23.56% in January 2024 and dropped further down to 23.44% in March.

In terms of investment, such unconventional banking accounted for 24.81% of the total investment made through the banking system up to last December.

But their share rose to 28.92% in January. Thereafter, a downturn came: the Shariah-based banks saw their share drop to 24.86% until March 2024.

Islamic banking bagged 47.92% of the country's overall remittance earnings through the formal channel.

In the following month there was a turnaround with the share having increased to 51.57%.

But, since then, the share has shrunk continuously to reach 41.46% and 37.95% in February and March respectively, according to the central bank data.

Last week, American credit-rating agency Fitch said liquidity shortages were still affecting Bangladesh's Islamic banking sector, which is more vulnerable than the conventional banks.

It said though the Islamic-banking market share is sizable in Bangladesh, it has been stagnant over the past two years.

The agency attributed the rot partly to the flight of deposits, governance issues and comparatively lax prudential requirements for Islamic banks.

However, some Islamic banks have been performing well in an adverse environment.