Islamic Banks Fall Behind on Deposits, Investment and Assets as Confidence Crisis Slows Growth

Bangladesh's Islamic banks have fallen behind conventional banks on all three indicators — deposits, investment and assets. The picture emerges from a Bangladesh Bank report analysing various indicators of Islamic banking and financial institutions. Financial instability, loan scandals, governance gaps and management weaknesses have eroded customer confidence in these banks, and the effect is now visible directly in their business.

According to the report, at the end of August 2026 total deposits at Islamic banks stood at Tk 475,000 crore, up from Tk 462,000 crore at the same time the previous year. In other words, deposits at Islamic banks grew by only 2.78 percent in a year, while deposits at conventional banks grew by 14.13 percent over the same period — nearly five times faster.

The picture is the same for investment. Over the same period, investment by Islamic banks rose to Tk 612,000 crore, from Tk 572,000 crore in August of the previous year — growth of 7.13 percent, against 12.75 percent growth in conventional banks' investment. Islamic banks also lag on total assets: their assets grew 6.57 percent in a year to Tk 1,005,000 crore, while asset growth at conventional banks was 11.56 percent.

There are currently ten full-fledged Islamic banks in the country. Five of them have been merged to form the Sammilito Islami Bank. In addition, conventional banks also provide Shariah-based banking services through branches and windows. According to the Bangladesh Bank report, 17 conventional banks run 49 Islamic banking branches, while 12 conventional banks provide services through 632 Islamic banking windows. Some banks operate through both channels.

Those familiar with the sector say years of irregularities, loan scandals and weak management have reduced public confidence in Islamic banking. In particular, major irregularities at two Islamic banks in 2022 have had a long-term effect on trust.

Dr Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development (INM) and a former chief economist of Bangladesh Bank, said aggressive lending from around 2021 had pushed up the loan flow of Islamic banks abnormally. Later, various irregularities and loan scandal information began to surface.

Bangladesh Bank appointed observers to several banks. From then on, customer confidence in Shariah-based banks began to decline, and the pace of deposit growth slowed as well. After August 2025, as various information about the crisis became public, pressure built up on both deposits and investment, the analysis shows.

In international trade, the Islamic banks' performance was mixed. In August 2026, their export-related receipts fell 5.4 percent year-on-year to 736 million dollars. Remittances, however, came in at 630 million dollars, 3.29 percent more than the previous year. Payments to settle import costs, on the other hand, rose by 10.13 percent.

Employment in the sector has also taken a hit. The number of employees at Islamic banks fell from 47,641 to 44,782 within a year — a reduction of about 6 percent.

Despite lagging on overall indicators, Islamic banks hold a notable presence in agent banking. They account for 48.45 percent of total agent banking deposits, against 51.55 percent for conventional banks. To hold this position, Bangladesh Bank has advised expanding agent networks, improving digital services and increasing customer confidence.

Bangladesh Bank spokesperson Arif Hossain Khan said, 'Five Islamic banks have now been merged to form the Sammilito Islami Bank. Various initiatives have already been taken to increase customer confidence in the bank. I hope confidence in Islamic banking will rise soon.' Whether the central bank's optimism is borne out will depend on how effective the confidence-restoring measures prove to be in the days ahead.