Bangladesh Country Report

Bangladesh is the fourth largest Muslim country and is located in South Asia. The country has achieved commendable economic and social success compared to its neighbouring peer group. Its global share of Islamic banking assets seems to be relatively low, though regional stake appears to be encouraging. On domestic front, Shari’ah based banking and finance which started in 1983 has considerable stake in financial landscape of Bangladesh’s economy. Eight full fledged Islamic banks with 1134 branches, 44 Islamic banking branches and windows under conventional banks, 11 Islamic insurance companies and 2 Islamic Non-bank financial institutions (NBFIs) mainly constitute institutional set up of Islamic banking and finance in Bangladesh. One-fifth of banking sector’s assets is owned by Islamic banks. A significant part of inward foreign remittances is channelled to recipients across the country through their vast network. Market share of Islamic NBFIs remains marginal while share of Islamic insurance companies is noticeable. Market capitalization of Islamic banks’ shares and Shari’ah based perpetual bonds issued by them play a considerable role in the country’s capital market. Islamic money market remains shallow mainly due to a limited number of money market instruments. However, lower Risk-weighted Asset density ratio accompanied by achievement of higher than regulatory standards of Capital-to-Risk Weighted Asset Ratio, Leverage Ratio, Liquidity Coverage Ratio and Net Stable Funding Ratio under Basel III framework indicate Islamic banks’ strong resilience to withstand any major shock. Furthermore, the better performance of Islamic banks in terms of higher Return on Assets (ROA), Return on Equity (ROE) and lower non-performing investment, compared to conventional banks, contributes to bring more stability in the financial system. Nonetheless, they appear to be somewhat vulnerable to investment shocks under different hypothetical stress scenarios, while they remain resilient against liquidity and market risks. Overcoming regulatory gaps through introduction of effective Shari’ah based regulations for NBFIs, Islamic insurance companies and the capital market is likely to bring more discipline, clarity in public perception regarding Islamic finance and will contribute to development of Islamic financial market by expediting financial transactions within different segments of Islamic financial market. This development has an implication to establish a more efficient and competitive healthy banking environment, a requirement for further employment generation and fostering GDP growth.