Islamic banking deposits up 8.35% in Q1

Bangladesh’s Islamic banking system posted strong deposit growth in the first quarter of 2026, as more customers placed their money with Islamic banks as well as Islamic banking branches and windows operated by conventional banks.

Deposits at Islamic banks rose 8.35 percent year-on-year to Tk 4.79 lakh crore at the end of March 2026, up from Tk 4.42 lakh crore a year earlier, according to Bangladesh Bank’s (BB) quarterly report published yesterday.

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The growth was more than ten times higher than the 0.8 percent increase recorded in the same period last year.

“Islamic banking branches and windows of conventional banks also contribute a considerable portion of the deposits, implying growing competition in the market,” BB said.

Despite the strong growth, the 10 full-fledged Islamic banks accounted for a slightly smaller share of the country’s total banking deposits, which fell to 23.62 percent from 24.36 percent a year earlier.

Islami Bank Bangladesh PLC remained the largest deposit holder with a 38.35 percent share, followed by Al-Arafah Islami Bank PLC, First Security Islami Bank PLC, EXIM Bank PLC and Shahjalal Islami Bank PLC.

Mudaraba Term Deposits made up the largest portion of total deposits at 51.35 percent, followed by Mudaraba Savings Deposits at 19.29 percent.

“This indicates a stronger customer preference for relatively higher returns offered by fixed-term deposits,” BB said.

“Overall, the deposit composition suggests that Islamic banking relies heavily on long-term, profit-oriented deposits, which may improve funding stability but could also increase withdrawal pressure during periods of liquidity stress,” it added.

Meanwhile, investment, or loans and advances, by the Islamic banking system rose 4.86 percent year-on-year to Tk 5.26 lakh crore at the end of March, an increase of Tk 24,417 crore. This represented 29.09 percent of the banking sector’s total loans and advances.

Islami Bank Bangladesh PLC also led the investment market with a 36.03 percent share, followed by First Security Islami Bank PLC and EXIM Bank PLC, showing that financing remained concentrated among a few large lenders.

Large industries received the biggest share of Islamic bank financing at 39.97 percent, followed by trade and commerce at 33.12 percent.

“This shows that Islamic banks continued to focus more on industrial and trade financing than on cottage, micro, small and medium enterprises,” BB said.

The central bank noted that investment under genuine profit-and-loss sharing modes, such as Musharaka and Mudaraba, remained very low.

It urged Islamic banks to give greater priority to these financing methods and introduce innovative products to bring more unbanked people into the financial system.

Overall, BB said deposits and investments remained stable, while Islamic banks continued to play an active role in remittances, agricultural credit, green finance, microfinance and financing for women entrepreneurs.

The central bank recommended that Islamic banks expand their services in rural areas, increase financing for agriculture and small businesses, and explore the financial needs of microfinance institutions, women entrepreneurs and government agencies.