External trade through Islamic banks in decline

External trade through Bangladesh's 10 Shariah-compliant banks is experiencing a sharp decline, while loans of these banks have outpaced their deposit collections by multiple times, placing immense strain on their liquidity.

Due to this imbalance, these banks may struggle to meet short-term financial obligations if a substantial portion of their funds is tied up in longer-term investments or loans. This issue is also evident in the central bank's data, where a liquidity shortfall is rising among the banks.

According to data from the Bangladesh Bank, exports facilitated by the 10 full-fledged Islamic banks saw a sharp decline of almost 39% in the July-September quarter, compared to a 9.26% decrease in the preceding quarter.

Meanwhile, the nation's overall exports demonstrated a contrasting trend, registering a growth of nearly 7% during the same quarter, as indicated by data from the Export Promotion Bureau.

Moreover, the country's total imports decreased by 25% during July–September, while imports through Islamic banks declined by 47%.

Ahsan H Mansur, a former economist of the International Monetary Fund (IMF), said due to various irregularities, there has been a crisis of confidence among businessmen regarding these banks.

"A businessman who exports millions of dollars must stay informed about the banking sector. Therefore, they consider whether they will receive proper payment from the respective bank while exporting," he told The Business Standard.

According to central bank data, Islamic banks have succeeded in increasing their deposit outstanding by around Tk33 crore in the year ending September. The year-on-year deposit growth is only 0.85%.

On the other hand, the loan disbursement outstanding by these banks increased by Tk323 crore in one year, reflecting a growth of 8.73%. In the last year, the amount of deposits that banks have been able to increase is nearly 10 times less than the increase in loans.

Zafar Alam, managing director and CEO of Social Islami Bank, told TBS, "I don't know about other banks, but many new products have been introduced to increase deposits in our bank. Now we are gradually able to increase the deposit."

Insiders in the banking sector claim that there are allegations of irregular lending from Islamic banks. Due to these reasons, customers are not able to trust the banks when making deposits.

Overall, the excess liquidity of the banks is decreasing. Excess liquidity in banks at the end of September fell by nearly 91% to Tk1,073 crore compared to the same period last year. Banks' excess liquidity declined by around Tk1,400 crore during the July–September period.

According to a report by the central bank, the liquidity situation of 10 Islamic banks has worsened during July–September compared to the previous three months. Among these banks, five do not have any excess liquidity; on the contrary, these banks are in shortfall.

Despite negative growth in all major indicators, Islamic banks have shown surprise in remittance dollar collections, posting over 39% year-on-year growth in the September quarter.

A senior official of an Islamic bank said, "Many of our banks have a lot of outstanding import bills. As a result, we now need a lot of dollars, so in most cases, we have to buy remittance dollars at a higher rate. Now the market condition is such that the bank that gives a higher rate will get more remittances. Due to these reasons, remittances in our banks have increased."

Currently, the official rate of remittance is Tk109.75 to the dollar, but many banks are buying remittances at a maximum rate of Tk123.

Zafar Alam said, "The year-on-year growth of remittances in our bank has been around 400%. Our remittances are increasing due to various benefits offered to remitters."

Ahsan H Mansur said, "The condition of Islamic banks was not like this. The main problem started with the change of ownership. Most Islamic banks are owned by a business group. After the group came into ownership, the condition of the banks is deteriorating day by day due to various irregularities."

When asked if the banks will face problems meeting their long-term liabilities due to bad indicators, the economist said, "They will definitely face problems."

"Deposits are not coming in due to the negative attitude of common people towards these banks. Again, the banks are bringing remittances at a higher price to meet the liability of letters of credit. Without good governance, the condition of these banks will not improve," he added.