Conventional banks outperform Islamic counterparts

Bangladesh's banking sector witnessed steady growth from January 2024 to January 2025, with key financial indicators like deposit, investment, and asset of conventional banks outperforming Islamic ones.

According to the latest Bangladesh Bank (BB), though both segment s showed positive trends, conventional banks remained a competitive edge in most areas than that of the Shariah-based ones.

The volume of total deposit with the banking system rose by 8.40 per cent to reach to Tk 19.05 trillion during January, 2024 to January 2025 over that of Tk 17.57 trillion during the corresponding period of last fiscal.

However, the amount of deposit with conventional banks marked a considerably rise to Tk 14.72 trillion, reflecting a 9.56 per cent year-on-year growth.

Islamic banks, by contrast, posted a more modest 4.64 per cent growth in their deposits amounting to Tk 4.33 trillion during the period under review, the BB data revealed.

As a result, Islamic banks' share in total deposits declined from 23.56 per cent to 22.74 per cent during the period.

Such fall was attributed partly to public distrust following alleged mismanagements that surfaced after a banking sector crisis in July 2024, Said the BB in its study report.

A similar trend was observed in investments, which grew by 11.76 per cent across the banking sector.

Conventional banks saw a 12.64 per cent increase in their investment, reaching Tk 16.37 trillion while Islamic banks recorded a 9.12 per cent growth to Tk 5.26 trillion.

Conventional banks operating in the country now account for nearly 75 per cent of total investments, reflecting their stronger role in channeling funds into the economy, according to the BB study.

The growth of asset further illustrated the divide, The BB report said, adding that Islamic banks expanded their total assets by 11.59 per cent to Tk 8.46 trillion.

On the other hand, conventional banks achieved a considerable 15.67 per cent growth in their assets amounting to Tk 30.96 trillion.

The figures indicate that conventional banks are strengthening their market dominance at a faster pace than that of their Islamic counterparts.

Export earnings, facilitated through banks, also saw positive momentum, said the report. Export receipts through Islamic banks increased by 16 per cent to over $ 3.18 billion in January 2025 compared to that of corresponding month of last year.

Conventional banks dealt with the lion's share of export earnings with nearly 80 per cent, reflecting a 17 per cent increase to Tk 3.18 billion during the period.

On the import front, Islamic banks recorded a 16.68 per cent rise in the payments as the amount increased to $1.29 billion during the mentioned period over the same period of last year.

Conventional banks, however, faced more volatility in settling import payments, partly due to a recent dollar shortage that affected transaction flows, according to the BB report.

However, Islamic banks maintained their leading position in collecting deposit under agent banking throughout the year.

In January 2024, they held 54.89 per cent of total deposits in this segment.

However, the growth rate for conventional banks in mobilising deposit through agent banking was higher at 24 per cent compared to that of 7.0 per cent for Islamic banks.

Such trends suggest that conventional banks were rapidly lessening the gap through wider outreach and possibly better customer engagement.

In light of these trends, banking sources suggested that Islamic banks must expand their digital services, improve governance, and strengthen customers' confidence to compete effectively with their conventional counterparts.

According to the BB study, since Shariah-based transactions continue to gain popularity among the general public, Islamic banking activities need to be more clearly defined and functionally strengthened both in the rural and urban areas.

It mentioned that Islamic banking is steadily expanding alongside conventional banking, highlighting the need to nurture and streamline its operations.

When asked, Managing Director of the Mercantile Bank PLC Mati Ul Hasan expressed his optimism about the future of Islamic banking, stating that its prospects remain strong as a growing number of people are inclined towards Islamic principles.

While acknowledging that the sector's reputation has faced challenges in recent years, he emphasised that with effective restoration efforts, Islamic banks have the potential to outperform their current standing.

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