Islamic banks get more liquidity facility

The Bangladesh Bank on Sunday introduced another liquidity facility – called Mudarabah liquidity support – for Islamic banks in a bid to help them cover their ongoing liquidity crisis.

This initiative came at a time when most of the 10 Shariah-based banks in Bangladesh are facing liquidity stress due to a myriad of reasons, including financial scams.

Issuing guidelines in this regard, the regulator said it has launched the facility to ensure financial stability and the resilience of Islamic Banks. The repayment tenure of the short-term loan will be 7 days, 14 days and 28 days.

The regulator will provide the support under Mudarabah Contract to Shari’ah based banks maintaining a current account with the Bangladesh Bank, where it acts as the Investor and the banks act as investment managers under an agreed Profit Sharing Ratio (PSR).

Banks will be able to claim this liquidity support against remittance incentives, financial stimulus packages or other incentives facilities, as per BB guidelines.

The applied amount of Mudarabah liquidity support shall be for a minimum amount of Tk 10 crore.

Before the move, the central bank in December last year had introduced a 14-day tenure “Islamic Bank Liquidity Facility” against Sukuk.

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

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

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

These 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 across the country.