BB launches liquidity facility for Islamic banks

Amid the crisis with banking sector in Bangladesh, the regulator has introduced a policy to provide liquidity facilities to Shariah-compliant banks.

For this, now Islamic banks will be able to take liquidity support from the Bangladesh Bank.

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

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

The central bank guideline comes at a time when the banking sector is facing liquidity shortage.

The BB guideline said that Shariah-based banks maintaining current accounts with Bangladesh Bank (BB) are eligible for the IBLF.

The banking regulator will provide the liquidity facility under the Mudarabah contract where Bangladesh Bank acts as the investor and banks act as the investment manager under an agreed Profit Sharing Ratio (PSR).

The 14 days tenure IBLF profit rate would be equal to three months Mudaraba Term Deposit Receipt (MTDR) of respective banks.

Islamic lenders would apply for IBLF on every working day through the prescribed form of the central bank to Securities Section of Motijheel Office within stipulated time set by Bangladesh Bank, as per the BB guideline.

It said that the IBLF will be provided according to the decision of the Auction Committee of BB.

Banks face liquidity shortage Industry insiders said that now most of the banks are facing liquidity shortage due to various reasons including increased import payment.

At the end of October of this year, excess liquidity in the country’s banking sector stood at Tk 1,69,586 crore, down from Tk 2,11,506 crore in January of this year, as per the latest data from the Bangladesh Bank.

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

The US dollar selling spree by the central bank impacted on the banks’ liquidity as the banking regulator sold $6 billion to banks and withdrew the equivalent amount of local currency from the banking industry.

The central bank had injected a record $7.62 billion from its reserve into banks in the last financial year.

A chief executive of a private commercial bank, seeking anonymity, said that now some depositors are withdrawing their money from the banks due to rumors on social media.

At present, 10 full-fledged Islamic banks have been operating with 1,682 branches out of total 10,963 branches in the entire banking system.

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

Total deposits of Islamic banking segment reached to Tk4123.41 billion at the end of June 2022, as per the central bank data.