Six Islamic banks battered by cash crunch, but rampant in lending

Liquidity crisis has worsened in six Shariah-based banks despite the central bank’s consistent assistance to keep them afloat. Still, they have been rampant in disbursing loans or making fresh investments.

According to a Bangladesh Bank report, the banks approved loans and investments in the recent months, which significantly exceeded the amount they received as deposits. In the aftermath, they witnessed their current account deficit to swell significantly. 

The central bank is providing collateral-free loans to these banks under special considerations, enabling them to continue their loan and investments.

However, there are allegations that the banking sector regulator is not monitoring the banks properly even after lending special cash assistance, which eventually lingering the crisis.

The scenario was revealed during conversations with officials of the concerned banks, in addition to analysing the recent central bank report.

A total of 10 Shariah-based banks are now in operation in Bangladesh, while six of them are suffering from acute cash crisis. The banks are – Islami Bank Bangladesh Limited (IBBL), Social Islami Bank (SIBL), First Security Islami Bank (FSIBL), Global Islami Bank (GIBL), Union Bank, and ICB Islamic Bank.

The central bank reported that the 10 banks maintained a combined deposit of Tk 4038.5 billion till December last year, but the amount dropped  by Tk 43.01 billion to Tk 3995.49 billion in March. 

On the flip side, their loan disbursements rose by Tk 107.52 billion during the period, from Tk 4146.8 billion recorded in December to Tk 4254.32 billion in March.  

The Shariah-based banks are required to maintain an advance-deposit ratio (ADR) of 92 per cent, but their ADR was recorded at 96 per cent in December last year, while it rose to 99 per cent in March this year.  Besides, the banks recorded a steep fall – Tk 50.43 billion – in excess liquidity, from Tk 56.47 billion to Tk 6.05 billion. 

The central bank disbursed Tk 220 billion in special loans to seven banks, including five Shariah-based ones, on the last working day of the previous year, to help them appear with better financial health. 

Thanks to this infusion, the banks showed handsome amounts in surplus liquidity in their financial statement at the end of the last year, which impacted the entire Shariah-based banking system. The same policy was followed in the preceding year too. 

Two officials from Shahjalal and Exim Bank, requesting to remain unnamed, told Prothom Alo that the five Shariah-based banks kept their aggressive loan distribution unchecked despite their liquidity crisis. Since they do not have enough deposits, they are now providing loans with the borrowings from the central bank. 

They alleged that such aggressive loan disbursal is tarnishing images of all Shariah-based banks. Officials of Al-Arafah Islami Bank and Standard Bank also echoed the concerns. 

It was learnt that the crisis-hit banks have long been failing to maintain the required level of cash reserve ratio (CRR) and statutory liquidity ratio (SLR) at the central bank. 

A separate report from Bangladesh Bank revealed a combined deficit of Tk 164.39 billion in the current accounts of the five troubled banks as of May this year.

Among them, the First Security Islami Bank has Tk 89.35 billion in current account deficit, while Tk 21.27 billion in Islami Bank, Tk 30.89 billion in Social Islami Bank, Tk 20.61 billion in Union Bank, and Tk 2.27 billion in Global Islami Bank. 

The managing directors of the troubled banks could not be reached over the phone despite repeated calls. 

Despite the financial woes, the Shariah-based banks continued to recruit fresh manpower, with those rooted in Chattogram in priority.

These banks had a total workforce of 48,883 at the end of December, and it rose to 49,742 in March this year. There was a surge in their remittance earnings, while export earnings remained negative.