BB plans to reduce AD ratio of Shariah banks by March
Abu Sazzad: The excess liquidity of Shariah-based banks have declined in the recent months mainly for disbursing additional advance from its target under the mandatory loans like SME, Agriculture and so on. The average deposit declined at 20 percent of the said banks.
Banking sources said, the Shariah-based banks saw a sharp fall in excess liquidity in the third quarter of last year because of aggressive investment to the point of violating the ceiling set by the central bank.
Between the months of July and September the excess liquidity of the Islamic banking industry shrank by 19.54 percent to Tk 5,202 crore from the previous three months, according to data from the Bangladesh Bank.
The loan-deposit ratio surged to 97 percent during the quarter, which is 7 percent above the authorised limit of 90 percent.
Of the eight full-fledged Islamic banks, five had lent breaching the ceiling.
The eight banks are Islami Bank Bangladesh, Exim, First Security, Al-Arafah, ICB Islamic, Social Islami, Shahjalal Islami and Union bank. Save for Islami Bank Bangladesh, Al-Arafah and ICB Islamic, all lent above and beyond their loan-deposit ratio ceiling.
The Islamic banks’ credit base expanded 14 percent
year-on-year to Tk 220,343 crore in the third quarter of 2018 against its deposit base of Tk 227,814 crore, which grew 11.67 percent.
Their share of excess liquidity accounted for 6.45 percent of the banking sector’s total surplus funds during the quarter.
The excess liquidity of the largest Shariah-based bank- Islami Bank Bangladesh Bank (IBBL) was Tk 1,307 crore at the end of July last year while the amount stood at Tk 947 crore at the end of September.
Another, reputed bank of this category is Social Islami Bank. The banks excess liquidity amount was Tk 1,278 crore at the end of July but it stood at Tk 1,007 crore.
Besides, the excess liquidity of Exim Bank was Tk 720 as on July which stood at Tk 451 crore as on September.
Meanwhile, the excess deposit of Shahjalal Islami Bank was Tk 691 crore up to July but at the end of September the amount stood at Tk 559 crore.
First security Islami Bank is not exception of it. The banks excess liquidity was Tk 493 crore in July which came down at Tk 129 crore at the end of September.
However, the total excess liquidity of Union bank was Tk 199 croe at the end of July which stood at Tk 58 crore at the end of September.
Meanwhile, Tk 13 crore excess liquidity of ICB Islami Bank remains unchanged during this period.
On the other hand, the excess liquidity amounting at Tk 83 crore incresed for Al-Arafah Islami bank. At the end of September, the deposit of the stood At Tk 1,086 crore.
Talking to the Daily Industry, Mohammad Haider Ali Miah, Managing Director of Exim Bank told that the excess liquidity of Shariah-based banks declined in the first quarter of the ongoing fiscal for higher loan disbursement to the mandatory sector.
Shariah-based banks in the county never facing capital shortfall but we cannot invest in Treasury bill and Bond, Haider Ali lamented. “Over-investment ate up the excess liquidity,” said Mohammed Haider Ali Miah, managing director of Exim Bank, a full-fledged Shariah-based lender.
Banks have now put the brakes on their lending after the central bank asked them to bring down their loan-deposit ratio to 89 percent from March. Islamic banks have never faced liquidity shortage, according to Miah.
“Rather, we faced excess liquidity as we cannot invest in conventional government treasury bills and bonds.”However, introducing an Islamic bond could be an alternative in future.
The current ADR ratio is 89 percent which should be reduced at a tolerable level to operate the banking business accordingly across the country, he mentioned.
Sources said, out of Shariah-based banks, Islami Bank Bangladesh accounted for the highest share of deposits (35.31 %), followed by First Security Islami Bank (13.56%), Al-Arafah Islami Bank (12.23%), Exim Bank (11.27%), Social Islami Bank (9.31%), Shahjalal Islami Bank (7.23%), ICB Islamic Bank (0.50%), and Union Bank (5.09%).
Bangladesh Bank Spokesman, Serajul Islam said, the Shariah-based banks provide relatively lesser than other scheduled banks, resulting in default loans. Islamic banks are gradually gaining people’s confidence for proving friendly service to customers.
The central bank has the obligation to reduce ADR ratio from the existing 89 percent. The central bank is planning to reduce ADR ratio by March.
After fixing new ADR, the temporary crisis of Shariah-based banks will overcome, he hoped.