Deposits in Islamic banks in Bangladesh have shown fluctuations in recent months, according to the latest data from the Bangladesh Bank.

Islamic banking deposits, which peaked at Tk 440,427 crore in June 2024, have declined in subsequent months, reaching Tk 432,937 crore in October -- a 0.31 percent drop from September.

Despite a brief increase in September, when deposits rose by 0.57 percent, the overall trend suggests a slowdown in deposit growth.

A breakdown of the data reveals that full-fledged Islamic banks hold the majority of deposits, standing at Tk 386,314 crore in October, followed by Islamic banking branches of conventional banks with Tk 27,438 crore and Islamic banking windows with Tk 19,184 crore.

Deposits in Islamic banking windows saw the highest growth among segments, increasing by 3.55 percent in October.

Islamic banking, which operates on interest-free principles, accounts for approximately 23.10 percent of total banking deposits in Bangladesh. The sector has expanded significantly in recent years, with conventional banks also offering Islamic banking services.

In addition to deposits, investments in Islamic banking have followed an upward trend, reaching Tk 518,438 crore in October, marking a 0.29 percent rise from September. Investment growth in the sector has been supported by demand for Shariah-compliant financial instruments, including Murabaha and Ijarah-based financing.

The Bangladesh Bank has introduced measures such as the Islamic Bank Liquidity Facility (IBLF) and the Mudarabah Liquidity Support (MLS) to ease liquidity pressures in the sector.

Islamic banks face liquidity challenges due to the increasing demand for Islamic financial products and limitations in interbank borrowing mechanisms. Unlike conventional banks, Islamic banks cannot rely on interest-based borrowing, restricting their ability to manage short-term liquidity needs effectively.

The central bank has been monitoring the situation and may introduce additional regulatory measures to stabilise deposit growth. While the Islamic banking sector remains resilient, it requires more diversified liquidity management tools and enhanced financial instruments for long-term stability.

Customer preferences are also influencing deposit trends in Islamic banks. Many depositors prefer Shariah-compliant savings schemes, but competition from conventional banks offering higher returns affects deposit inflows. Introducing new Islamic banking products and improving financial literacy may help attract more deposits.

Remittance inflows through Islamic banks have also fluctuated. In October, total wage earners' remittances through Islamic banking channels stood at Tk 7,013 crore, reflecting an 8.27 percent increase from the previous month.

Islamic banks are expected to continue expanding their services, with several institutions planning to introduce new financial products. The sector's growth remains strong, but addressing liquidity concerns and enhancing regulatory frameworks will be crucial for its sustainability.