Islamic banks experience an increase in gross default loans.

 Islamic banks experience an increase in gross default loans.

In 2023, Bangladesh's Islamic banks saw an increase in both their gross non-performing loan (GNPL) and unclassified rescheduled loan (URSDL) ratios compared to the previous year, indicating a decline in asset quality.

According to the Financial Stability Report 2023 published by Bangladesh Bank (BB), the GNPL of Shariah-based banks rose to 4.8 percent of total investments, up from 4.1 percent in 2022. Similarly, the URSDL ratio increased by 3.4 percentage points, reaching 14.7 percent in 2023.

The overall banking sector’s URSDL ratio stood at 14.5 percent, slightly lower than that of the Islamic banks. Despite these challenges, the asset quality indicators of Islamic banks, such as GNPL and net non-performing loan (NNPL) ratios, showed better performance compared to the broader banking industry in both 2022 and 2023.

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By the end of December 2023, the GNPL and NNPL ratios for Islamic banks were 4.8 percent and negative 0.1 percent, respectively. However, the BB report noted a deterioration in GNPL and URSDL ratios for Islamic banks compared to the previous year.

The report also highlighted that Islamic banks performed better in terms of total deposit growth in 2023 but recorded slower growth in assets, investments (advances), and shareholders' equity.

In terms of efficiency, Islamic banks showed marginal improvement in 2023, primarily due to an increase in return on assets (ROA) and net non-interest income (NNII). Nevertheless, asset quality, growth, capital adequacy, and liquidity indicators weakened by the end of the year.

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The report pointed out that slower growth in assets, investments, and equity contributed to the deterioration in growth indicators. Islamic banks' market share in total investments, assets, and deposits also declined, with their share of total banking sector deposits falling from 22.6 percent in 2022 to 21.7 percent in 2023, and their share of total investments dropping from 26.3 percent to 25.9 percent.