Islamic banks see faster credit growth: survey

Shariah-based banks secured as much as 22.31 percent credit growth last year, way higher than the whole banking industry's average of 18.66 percent, a survey found.

The loan growth of private commercial banks was 21.72 percent, showed the "Islamic Banking Operations of Banks" survey conducted by the Bangladesh Institute of Bank Management (BIBM).

The survey findings were shared at a workshop at the BIBM in Dhaka yesterday.

The survey showed the market share of credit provided by Islamic banks was 24 percent whereas that of private commercial banks was 75.10 percent.

The Islamic banks were also ahead in deposit collection, registering a 12.79 percent growth, compared to 10.75 percent by all banks.

The weighted average rate of profit on deposits was 5.65 percent for Shariah-based banks, higher than that of private commercial banks and the banking industry as a whole. Similarly, the spread of Islamic banks was the lowest compared to that of others.

According to the survey, investment by all banks is concentrated mostly in Dhaka and Chittagong divisions.

The survey found that 47.86 percent of the deposits were collected from only 12.13 percent of the account-holders.

What was more surprising is that the banking industry invested about 67 percent of their funds into less than 2 percent of their clients.

Moreover, two thanas of Dhaka city, namely Motijheel and Gulshan possess the highest share of deposits and credit growth.

There are eight Shariah-based banks in the country with Islami Bank Bangladesh Ltd (IBBL) holding the majority share.

IBBL accounted for 36.9 percent of the total deposits mobilised by the full-fledged Islamic banks last year, down from 38 percent in 2016.

Among other lenders, Union Bank improved its position in 2017 amassing 5.6 percent of the deposits, up from 4.16 percent a year ago.

The Islamic banking industry holds about 20 percent of assets, liabilities and equity, and channel about 37 percent of the remittance into the country.

According to the chief executives surveyed, the Islamic banking industry has failed to nurture leaders who can take over and run the industry.

Due to the lack of a sharing mode of investment, Islamic banks are also favouring the concentration of wealth within the rich.

Currently, there is no separate act in Bangladesh to guide Islamic banking activities, although the central bank has formulated a guideline for them. 

It is now the need of the hour to introduce more comprehensive guidelines to bring greater transparency and accountability to the industry, the report recommended.

Md Alamgir, an associate professor of the BIBM, presented the research paper.

Abu Hena Mohd Razee Hassan, a deputy governor of the Bangladesh Bank, and Toufic Ahmad Choudhury, director general of the BIBM, also spoke.