Islamic banking liquidity surplus shrinks in Bangladesh as government increases Sukuk issuance

Daily Cover

With more money than it knows what to do with, the Islamic banking community in Bangladesh finally has more good use for its pile of idle cash, thanks to the government’s Islamic monetary policy.

In the first three months of the year, the country managed to drain more excess liquidity from the Islamic banking system – reducing the surplus by almost one-fifth (17.21%) to BDT80.31 billion (US$976.19 million) as compared with the same quarter in 2016 and bringing the share of Islamic liquidity surfeit against conventional to 7.18%, the lowest it has been in years. Islamic banks accounted for 8.02% of total surplus liquidity 12 months earlier and 8.48% at the end of March 2015.

The deplete comes amid a hike in Government Islami Investment Bond issuances: From January to the 4th June 2017 (when the most recent offering was made), the government has floated 39 Islamic papers to soak up liquidity from Islamic banks, up from the 31 made in the same period last year. This is in line with the government’s intent to remedy the surplus Islamic liquidity problem.

“Islamic banks in Bangladesh have been facing [an] excess liquidity problem for long as they [are not allowed to] invest in government treasury bills and bonds because of the interest-bearing nature of these monetary instruments,” explained the central bank, adding that this has affected Islamic banking profitability.

Excess liquidity has long been a problem for Bangladeshi Islamic banks – a plight also familiar to their international counterparts. With no problems attracting deposits from consumers in one of the world’s most populous Muslim nations (Islamic banking deposits grew 14.6% year-on-year in the first quarter), Islamic banks are limited in investment avenues that respect their religious requirements to effectively manage surplus liquidity.

The gradual depletion of liquidity abundance is most welcomed; however, the amount of uninvested cash being held by Islamic banks is still nonetheless alarming for banking players concerned over the adverse impact of such inefficiencies on their bottom line and cost of funding; it is nonetheless a step in the right direction on a very long road.

Disclaimer
The information on this page may have been provided by a contributor to ChinaGoAbroad, and ChinaGoAbroad makes no guarantees about the accuracy of any content. All content shall be used for informational purposes only. Contributors must obtain all necessary licenses and/or ownership rights from the relevant content owner(s) before submitting such content (including texts, pictures, photos and diagrams) to ChinaGoAbroad for publication. ChinaGoAbroad disclaims all liability arising from the publication of any content/information (such as texts, pictures, photos and diagrams that infringe on any copyright) received from contributors. Links may direct to third party sites out of the control of ChinaGoAbroad, and such links shall not be considered an endorsement by ChinaGoAbroad of any information contained on such third party sites. Please refer to our Disclaimer for more details.
Top