Surplus funds continue to shrink in Islamic banks

Once Islamic banks had been in the leading position in terms of holding surplus liquidity, but now those lenders continue to lose their surplus funds to keep pace with the conventional banks.

At the end of September this year, excess liquidity in Islamic banks stood at Tk 17,525 crore, down by 32.61 per cent from the June quarter, according to Bangladesh Bank latest data.

The surplus liquidity of those lenders amounted to Tk 29,999 crore at the end of March this year. The figure was Tk 35,186 crore at the end of September last year.

The growing import payments after the Covid-19 pandemic and recent loan irregularities were the reasons behind the liquidity shortage in Islamic banks, BB officials said.

They said that Islamic banks had no liquidity shortfall previously, but now those lenders are also facing a liquidity shortage along with conventional banks.

A chief executive of a private commercial bank, seeking anonymity, said an increasing number of depositors are now withdrawing their money from the banks due to rumours spreading on social media.

However, the deposits of Islamic banks slightly rose in the September quarter. Deposits of those shariah-based lenders stood at Tk 421,375 crore, up by only 2.19 per cent than the June quarter, the BB data showed.

The share of total deposits of Islamic banks accounted for 26.80 per cent of the whole banking sector at the end of September.

At the end of the September quarter, total Investment (loans & advances) of the Islamic banking system stood at Tk 386,221 crore, up by 1.15 per cent from the June quarter.

The Islami Bank Bangladesh had the highest surplus fund in the banking industry but its excess funds fall drastically now due to recent loans irregularities in the bank.

A growing number of clients are withdrawing their funds from the bank because the lender became mired in controversy after a number of IBBL documents and media reports alleged that the bank approved Tk 9,135 crore for 11 ghost and obscure companies.

The recent trend in encashment has severely impacted IBBL deposits, which dipped to Tk 150,372.7 crore at the end of November this year.

Policy for Islamic Banks Liquidity Facility To deal with the tight liquidity situation in Islamic banks, the Bangladesh Bank has recently introduced a policy to provide liquidity facilities to shariah-compliant banks.

With an aim to strengthen the financial management of Islamic banks, the central bank issued a guideline titled “Islamic Banks Liquidity Facility (IBLF)”.

According to the guideline, the tenure of the liquidity support will be 14 days and the shariah-based lenders can apply to the central bank for the support during working days.

At present, 10 full-fledged Islamic banks have been operating with 1,605 branches, out of 10,974 branches of the whole banking system.

The Islamic banks are Islami Bank Bangladesh, ICB Islamic Bank, Social Islami Bank, Al-Arafah Islami Bank, Exim Bank, Shahjalal Islami Bank, First Security Islami Bank, Global Islami Bank, Standard and Union Bank.

In addition, 23 Islamic banking branches of 11 conventional commercial banks and 511 Islamic banking windows of 13 conventional commercial banks are also providing Islamic financial services in Bangladesh.