Slow deposit growth in shariah banks

The flow of deposits in shariah-based banking operations fell slightly while investment marked a steady rise in July as Bangladesh saw the build-up of a mass uprising that led to the fall of the Sheikh Hasina regime.
When it comes to wage earners' remittance and assets, unconventional banks have kept losing their share in recent months as it has become a matter of concern, particularly to a section of Islamic bankers.
According to Islamic banking-related statistics of the Bangladesh Bank (BB), the country's central bank, the entire volume of deposits in Islamic banking operations dropped by Tk 30.14 billion to stand at Tk 4.73 trillion until July from the June count of Tk 4.40 trillion.
But the total Islamic banking investment volume reached a record high in July, amounting to Tk 5.15 trillion, up by Tk 11.01 billion from Tk 5.13 trillion in the previous month of June, disclosed the data.
The continuous fall of share was also observed in remittance earnings, considered one of the main strengths of such banking operations.
Islamic banking bagged more than 51.57 per cent of the country's overall remittance earnings even in December 2023.
Since then, shariah-based banking operations have kept losing their share with the fall of their remittance share to 41.46 per in February and 39.96 per cent in March.
Now, the share of the banks dropped further to 34.97 per cent in July 2024, according to the BB data.
The assets holding of the Islamic banks in the industry also plummeted to 18.95 per cent in July from 19.32 per cent recorded in its previous month.
Seeking anonymity, a BB official said there were a number of media reports regarding large-scale loan-related irregularities in these unconventional banks, which might shatter people's confidence.
"These could be a reason behind such a fall in market share," the central banker said.
An Islamic bank's managing director, who preferred not to be quoted by name, said savers started diverting their funds into conventional banks despite their multiple steps to convince them.
As a matter of fact, the growth of deposits in such banks has slowed down in recent times, which is probably reflected in the data.
The contribution of the shariah-based banks in terms of receiving remittance was huge even a few months ago, but it has dropped remarkably in recent times, he said.
"And it is a matter of serious concern for us. But we're trying our best to improve the situation," added the banker.
Deputy managing director (DMD) and chief financial officer (CFO) of Al-Arafah Islamic Bank Muhammod Nadim said the country witnessed a build-up to the uprising in July that severely disrupted banking operations across the country.
"This could be a major reason behind the fall in the deposit collection by the Islamic banks in July. But our bank managed to maintain deposit growth in that month," he said.
Regarding a fall in remittance, Mr Nadim said exchange houses have been selling dollars through bidding in recent months. Under the mechanism, those who bid higher rates get the greenback.
"This is one of the reasons behind the remittance drop," he added.

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