The central bank of Bangladesh is exploring solutions to reform the country’s troubled Islamic banking sector, including potential mergers to strengthen the banks and increase competition between them. NESSREEN TAMANO reports.
Dr Ahsan H Mansur, the governor of Bangladesh Bank, shared plans to merge some of the 10 full-fledged Islamic banks in the country to establish two large Islamic banks. The move is part of wider efforts to overhaul the banking sector, which has long been plagued by governance issues, liquidity crises and regulatory shortcomings.
Speaking at the two-day 10th Annual Banking Conference held in Dhaka by the Bangladesh Institute of Bank Management, Dr Ahsan emphasized the urgent need for banking reforms, highlighting the Islamic banking industry as a key focus area. He noted that the lack of a dedicated Islamic banking law has exacerbated the sector’s challenges, and that the government is currently working to address this issue.
The governor underlined that bringing Bangladesh’s Islamic banking industry to international standards will take time and cannot be achieved overnight, but is a necessary endeavor.
Dr Ahsan added that other initiatives for the banking sector include accelerating digitalization, promoting financial inclusion and leveraging emerging technologies such as AI, blockchain and machine learning to transform and improve banking operations, risk management and customer experience. The banking sector will also need to embrace green finance and support the country’s transition toward a sustainable and climate-resilient economy, he added.
Bangladesh’s Islamic banking sector accounted for 24.75% of the country’s total banking industry in 2024 – a drop from 25.35% recorded by the central bank in 2023. Despite its growth potential and substantial share of the market, several Shariah banks have faced severe liquidity shortages since late 2022, exacerbated by mass deposit withdrawals following reports of loan irregularities. There have also been allegations of mismanagement and corruption linked to politically connected oligarchs who control some Islamic banks under the previous government, leading to damaged public trust in Islamic banking institutions.
Bangladesh Bank recently took action against several underperforming banks, dissolving their boards and restructuring their operations. The apex bank has also provided emergency liquidity support through its Islamic Banks Liquidity Facility issued every week, to prevent the further collapse of the sector.
