Cash crunch lingers at crisis hit Islamic Banks

Five Shariah-based banks are still experiencing liquidity crisis despite significant support from the central bank, which hit the overall surplus cash situation in the Islamic banking system in the July-September quarter, a Bangladesh Bank report said.

The crisis-hit five banks are -- Islami Bank Bangladesh, Social Islami Bank, First Security Islami Bank, Union Bank, and Global Islami Bank.

At the end of September, Islami Bank Bangladesh's liquidity shortfall stood at Tk 658 crore, Social Islami Bank's Tk 1,059 crore, First Security Islami Bank's deficit was Tk 826 crore, Union Bank's shortfall stood at Tk 483 crore, and Global Islami Bank's liquidity shortfall amounted to Tk 465 crore, the report said.

When contacted, Zafar Alam, managing director of Social Islami Bank, said that their liquidity situation is improving gradually.

"The number of individual depositors has increased at our bank. However, corporate deposits are yet to pick up. Therefore, we are facing a shortage."

"However, we did not need the central bank liquidity support in the last one week."

The managing directors of Islami Bank Bangladesh, First Security Islami Bank, Union Bank, and Global Islami Bank could not be contacted.

According to the central bank report, Shahjalal Islami Bank had Tk 2,526 crore excess liquidity in the September quarter. The surplus was Tk 127 crore for Al-Arafah Islami Bank and Tk 1,178 crore for Exim Bank.

Besides, ICB Islamic Bank, Standard Bank and Islamic banking branches and windows of other banks had excess liquidity.

A senior official of the central bank, seeking anonymity, said that the five banks failed to keep the minimum cash and liquidity with the central bank, prompting the BB to impose fines on them.

He said Islami Bank, Social Islami Bank, First Security Islami Bank, Union Bank, and Global Islami Bank have been facing a shortfall in cash reserve ratio (CRR) and statutory liquidity ratio (SLR) since last year after they were hit by loan irregularities. The scams led many depositors to withdraw funds.

As per rules, banks have to keep a certain amount of deposit with the central bank every night in the form of CRR. They also have to keep a minimum percentage of customers' deposits in the form of liquid cash, gold or other securities overnight, which is known as SLR.

For Islamic banks, the minimum CRR requirement is 4 percent of cash and the SLR requirement is 5.5 percent of deposits. If they fail to meet the targets, the BB imposes a penalty, which is 9 percent and 8.5 percent of the shortfall for the day.

Amid the lingering deficit, the central bank has continued to provide liquidity support to the five banks.

In Bangladesh, Islamic banks were sitting on huge excess liquidity two to three years ago. Now, the sector is going through challenges due to the massive loan irregularities at the five banks, the central banker said.

In September, the excess liquidity at Islamic banks stood at Tk 7,767 crore, down 56 percent from Tk 17,525 crore a year earlier, the BB report said.

In a positive development, the total deposit at Islamic banks rose 2.52 percent year-on-year to Tk 431,989 crore in September.