Deposits at Shariah-based banks in Bangladesh dropped by Tk 11,781 crore, leading to a negative liquidity position of around Tk 2,000 crore in September, as public confidence plummeted following widespread loan scandals and irregularities.
According to a Bangladesh Bank report titled ‘Quarterly Report on Islamic Banking in Bangladesh,’ deposits at full-fledged Islamic banks plunged to Tk 3,90,760 crore at the end of September from Tk 4,02, 541 crore at the end of June.
Excess liquidity at full-fledged Islamic banks plunged to Tk 1,990 crore at the end of September from Tk 7,866 crore in June.
‘Liquidity position of full-fledged Islamic banks decreased significantly during the quarter under report compared to previous quarter due mainly to shortfall of deposits and excess withdrawal by the depositors,’ BB report said.
Depositor trust waned primarily due to revelations of large-scale loan irregularities, particularly in banks linked to the controversial S Alam Group.
Allegations suggest that the group funneled approximately Tk 1 lakh crore from these banks through various accounts.
There are 10 full-fledged Shariah-based banks operating in the country.
These banks are Islami Bank Bangladesh, Al Arafah Islami Bank, Social Islami Bank, Union Bank, Global Islami Bank, First Security Islami bank, Standard Bank, Exim Bank, Shahjalal Islami Bank, and ICB Islamic Bank, where first six banks were controlled by controversial S Alam Group.
The situation worsened further after the Bangladesh Bank restructured board of all S Alam controlled banks with an aim of rescuing them from financial strain.
A number of government agencies including Anti-Corruption Commission, Bangladesh Financial Intelligence Unit and Criminal Investigation Department have been investigating S Alam’s assets at home and abroad.
This intensified scrutiny has further unveiled the precarious financial state of these banks, leading depositors to panic.
In response to growing fears, the central bank assured depositors that their funds are secure and pledged to repay depositors if any bank fails. The commitment has helped ease some concerns but has not completely restored confidence in the sector.
Market share of Shariah-based banks in overall deposits in the country’s banking system dropped to 25.08 per cent at the end of September from 25.56 per cent in June.
Total deposits across all Islamic banking services, including Islamic branches and windows of conventional banks, fell to Tk 4,36,667 crore in September from Tk 4,45,309 crore in June.
Of the total deposits, full-fledged Islamic banks held Tk 3,90,760 crore, Islamic banking branches of conventional banks held Tk 20,582 crore and Islamic banking windows of conventional banks held the remaining Tk 25,325 crore.
Currently, 33 out of the 60 scheduled banks in the country are offering various Islamic banking services.
