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Islamic banks in Bangladesh recorded sluggish deposit growth in June 2025, trailing well behind their conventional counterparts despite an overall uptick in the banking sector's performance.
Deposits in the Islamic banks rose by just 2.67 per cent year-on-year to Tk 4.52 trillion in June 2025, up from Tk 4.40 trillion a year earlier, latest Bangladesh Bank (BB) data shows.
In contrast, deposits across the total banking sector climbed by 8.04 per cent, standing at Tk 20.22 trillion, compared to Tk 18.71 trillion in June 2024.
Conventional banks contributed much to this growth, with their deposits rising to Tk 15.69 trillion, up 9.69 per cent from Tk 14.31 trillion over the same period.
According to bank insiders, waning depositor confidence in the Islamic banking segment is a key factor behind the slow growth.
They stressed the need for product diversification, better governance, and digital expansion to regain momentum.
"People are increasingly moving towards conventional banks due to a lack of confidence and governance issues in the Islamic banking sector," said Syed Mahbubur Rahman, Managing Director and CEO of Mutual Trust Bank PLC.
He noted that the less than 3.0 per cent deposit growth was primarily driven by just one or two Islamic banks, while contributions from other Islamic banks remain minimal.
He emphasised that Islamic banks need to restore public trust and strengthen governance to attract deposits.
Despite the slowdown in deposit mobilisation, Islamic banks saw healthy growth in investments and assets.
Total investments in the banking sector surged by 11.03 per cent to Tk 22.90 trillion, up from Tk 20.63 trillion in June 2024.
Islamic banks contributed significantly, with their investments rising to Tk 5.70 trillion, a 10.87 per cent increase from Tk 5.14 trillion a year earlier.
Islamic banks also expanded their assets, with total assets growing 14.12 per cent to Tk 9.74 trillion, up from Tk 8.53 trillion in June 2024.
However, performance in foreign exchange and remittance segments revealed a mixed picture.
Export proceeds via Islamic banks rose 4.67 per cent, from $657 million to $688 million in June 2025, but import payments declined 7.32 per cent, falling from $95 billion to $88 billion over the same period.
Remittance inflows through Islamic banks also weakened, with their share slipping from around 36 per cent in early 2024 to 31 per cent by June 2025. Monthly remittance receipts dropped from $764 million in November 2023 to $612 million in June 2025. In comparison, conventional banks maintained steady growth in this area.
Agent banking deposits, however, painted a brighter picture. Islamic banks accounted for 54.47 per cent of total deposits in June 2024, valued at Tk 213 billion. This figure rose to Tk 248 billion in June 2025, reflecting a 16.08 per cent growth.
Commenting on the sector's outlook, Dr. M. Masrur Reaz, Chairman of Policy Exchange Bangladesh (PEB), said that while Islamic banks have shown commendable resilience in expanding investments and asset bases, the modest 2.67 per cent deposit growth in June 2025 signals emerging challenges for the sector.
"To remain competitive and responsive to market demands, Islamic banks must focus on restoring depositor confidence through strategic improvements in customer service, transparency, digital banking solutions, and by strengthening governance and risk management," Dr Reaz told the FE.
Moreover, narrowing the performance gap with conventional banks will require targeted strategies, including enhancing product diversity, promoting financial inclusion, and expanding outreach, especially in underserved and rural areas, he added.
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