Sunday, 08 September, 2024
Islami Bank Bangladesh has recently made headlines for its impressive operational growth, just months after facing rumours and concerns following reports about substantial lending to a single borrower and receiving liquidity support from the central bank. After the rumours spread, a large number of depositors flocked to the bank’s branches to withdraw their funds, with many fearing that this Sharia-based bank might collapse. However, Islami Bank overcame its difficulties and rebounded quickly.
The Daily Observer first brought the issue to light in a report published last month, highlighting that Islami Bank Bangladesh (Islami Bank) rebounded quickly from a brief setback due to strong operational performance in all key areas. The Daily Star, the country's largest-circulation English daily, last week reported that Islami Bank has overtaken Sonali Bank, the largest state-run commercial bank, to become the top lender by deposits, totalling Tk 153,456 crore in 2023. The Inquilab, a prominent vernacular daily, has also acknowledged Islami Bank as the largest bank in terms of deposits, which saw a 9.00 per cent increase compared to the same period in 2022. In contrast, Sonali Bank experienced a 6.00 per cent annual growth in deposits, reaching Tk 150,606 crore in 2023.
Jana Kantha, another leading vernacular daily, has provided even more encouraging reports. According to the Daily, Islami Bank Bangladesh has outperformed all public and private banks in most banking performance indices. The report states that the bank added Tk 6,350 crore in new deposits during the six months ending in June 2023 amounting to Tk 159,792 crore- more than 9.00 per cent of the total banking deposits in the country.
Deposits are the lifeblood of banking institutions, enabling them to extend loans and investments that generate revenue. Without deposits, there can be no loans; in other words, deposits create loans. Islamic Term Deposits operate on the Shariah principle of Commodity Murabahah (cost-plus-sale), where the bank identifies a specific asset as the basis for the sale and purchase transaction with the customer.
There have been several instances in history where banks have collapsed due to deposit withdrawals driven by misinformation or panic. These events are commonly referred to as "bank runs. In 2023, a major British bank faced a bank run after rumours about its financial stability spread, leading to the first bank run in the UK in over a century. Earlier, Washington Mutual, a major American savings bank experienced a bank run driven by fears over its financial stability, leading to its collapse. Silicon Valley Bank, a major player in the tech industry also experienced a massive bank run due to concerns about its financial health during the 2008 financial crisis. This led to its collapse and acquisition by JPMorgan Chase.
According to published reports, these robust Sharia-based deposit buffers have enhanced the bank's resilience against economic shocks and enabled increased investments to spur the country's economic growth. Meanwhile, Islami Bank’s investment increased 9.50 per cent to Tk 1600,266 million in 2023 despite the harsh global business environment while its total assets increased by 10.52 per cent- higher than the industry average mainly due to its higher recovery rate- nearly 99 per cent from SMEs and agriculture. The bank’s investment in small and medium industries (CMSME) was the highest allocation among the banks with an impressive 20.23 per cent growth over the year and stood at Tk 32,377 crore in 2023.
The swift rebound of Islami Bank Bangladesh PLC is a subject of interest for banking professionals, as misinformation and panic can significantly contribute to bank collapses. Historically, there have been several instances where banks have collapsed due to deposit withdrawals driven by misinformation or panic, commonly known as "bank runs." Bank failures are more common than many realize, with 569 occurring in the U.S. since January 1, 2000—an average of about 25 per year. However, the consecutive collapses of Silicon Valley Bank (SVB) and Signature Bank in early 2023, followed by First Republic Bank in May, were unique in several ways.
What contributed to Islami Bank's tremendous success over a few months, especially in the face of rumours and unfounded misinformation in the media? The question has been raised: Is it a miraculous rise or an inevitable success?"
The answer lies in several factors, including customer trust, effective governance, strong operational performance, a sound investment strategy, and intensive efforts from officials at all levels, from top management to rural branches. Dr. Toufic Ahmad Choudhury, former Director General of the Bangladesh Institute of Bank Management (BIBM), highlighted two major factors behind Islami Bank's success: trust and religious sentiment, he told a daily.
Trust is like a vase: once it’s broken, it can be repaired, but it will never be the same. This is crucial because consumer trust in banking influences behaviour, driving loyalty and creating revenue opportunities when nurtured properly, or leading to risks if customers disengage. The impact of mistrust is particularly evident during financial difficulties. People trust Islami Bank not only for its Sharia-based banking principles, which emphasise profit and loss sharing and prohibit interest collection and payment but also for its commitment to these values.
Unlike conventional finance, plagued by opacity and inequity, a former CEO of a private commercial bank said Islamic banking boasts a transparent structure devoid of intricate black boxes that demand a genius to unravel. Islami Bank Bangladesh has emerged not merely as a religious sentiment but as an innovative force, driven by its welfare-centric business model that attracts investments from the Muslim population while catering to diverse financial preferences. So, the success of IBB was inevitable.
According to a central bank official, Islami Bank Bangladesh achieved remarkable growth due to its purpose-driven approach, proactive strategies, and greater transparency. In this digital era, Islami Bank has increased customer engagement by improving its range of digital services. This has broadly been a success, with growing numbers of consumers across all demographics regularly interacting through apps and other means of digital engagement.
He mentioned that the Islami Bank secured the top position (40.74%) in remittance mobilisation amounting to Tk 353.48 billion during October-December 2023 thanks to its CELLFIN APP that helps millions of expatriate Bangladeshi to remit money instantly to their family, firms and friends.
Another aspect of Islami Bank's rebound is its strategic investment in rural areas, which yields higher returns. The bank targets millions of women, small traders, and vendors, both Muslim and non-Muslim, who trust Islami Bank, deposit their money for higher returns, and repay their investments promptly, resulting in a nearly 99 per cent recovery rate. However, many media outlets have overlooked this strength, instead focusing on a portion of the bank’s operations that the CEO claims is misleading.
In conclusion, both the media and banks should concentrate on sustaining the growth of Islamic banking through responsible media intervention. The media profoundly influences public perception and can play a pivotal role in correcting misconceptions. Timely and thoughtful media engagement is essential for deepening public understanding of Islamic banking, attracting a broader audience, and supporting the sector’s sustainable development in Bangladesh.
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Islami Bank Bangladesh has recently made headlines for its impressive operational growth, just months after facing rumours and concerns following reports about substantial lending to a single borrower and receiving liquidity support from the central bank. After the rumours spread, a large number of depositors flocked to the bank’s branches to withdraw their funds, with many fearing that this Sharia-based bank might collapse. However, Islami Bank overcame its difficulties and rebounded quickly.
The Daily Observer first brought the issue to light in a report published last month, highlighting that Islami Bank Bangladesh (Islami Bank) rebounded quickly from a brief setback due to strong operational performance in all key areas. The Daily Star, the country's largest-circulation English daily, last week reported that Islami Bank has overtaken Sonali Bank, the largest state-run commercial bank, to become the top lender by deposits, totalling Tk 153,456 crore in 2023. The Inquilab, a prominent vernacular daily, has also acknowledged Islami Bank as the largest bank in terms of deposits, which saw a 9.00 per cent increase compared to the same period in 2022. In contrast, Sonali Bank experienced a 6.00 per cent annual growth in deposits, reaching Tk 150,606 crore in 2023.
Jana Kantha, another leading vernacular daily, has provided even more encouraging reports. According to the Daily, Islami Bank Bangladesh has outperformed all public and private banks in most banking performance indices. The report states that the bank added Tk 6,350 crore in new deposits during the six months ending in June 2023 amounting to Tk 159,792 crore- more than 9.00 per cent of the total banking deposits in the country.
Deposits are the lifeblood of banking institutions, enabling them to extend loans and investments that generate revenue. Without deposits, there can be no loans; in other words, deposits create loans. Islamic Term Deposits operate on the Shariah principle of Commodity Murabahah (cost-plus-sale), where the bank identifies a specific asset as the basis for the sale and purchase transaction with the customer.
There have been several instances in history where banks have collapsed due to deposit withdrawals driven by misinformation or panic. These events are commonly referred to as "bank runs. In 2023, a major British bank faced a bank run after rumours about its financial stability spread, leading to the first bank run in the UK in over a century. Earlier, Washington Mutual, a major American savings bank experienced a bank run driven by fears over its financial stability, leading to its collapse. Silicon Valley Bank, a major player in the tech industry also experienced a massive bank run due to concerns about its financial health during the 2008 financial crisis. This led to its collapse and acquisition by JPMorgan Chase.
According to published reports, these robust Sharia-based deposit buffers have enhanced the bank's resilience against economic shocks and enabled increased investments to spur the country's economic growth. Meanwhile, Islami Bank’s investment increased 9.50 per cent to Tk 1600,266 million in 2023 despite the harsh global business environment while its total assets increased by 10.52 per cent- higher than the industry average mainly due to its higher recovery rate- nearly 99 per cent from SMEs and agriculture. The bank’s investment in small and medium industries (CMSME) was the highest allocation among the banks with an impressive 20.23 per cent growth over the year and stood at Tk 32,377 crore in 2023.
The swift rebound of Islami Bank Bangladesh PLC is a subject of interest for banking professionals, as misinformation and panic can significantly contribute to bank collapses. Historically, there have been several instances where banks have collapsed due to deposit withdrawals driven by misinformation or panic, commonly known as "bank runs." Bank failures are more common than many realize, with 569 occurring in the U.S. since January 1, 2000—an average of about 25 per year. However, the consecutive collapses of Silicon Valley Bank (SVB) and Signature Bank in early 2023, followed by First Republic Bank in May, were unique in several ways.
What contributed to Islami Bank's tremendous success over a few months, especially in the face of rumours and unfounded misinformation in the media? The question has been raised: Is it a miraculous rise or an inevitable success?"
The answer lies in several factors, including customer trust, effective governance, strong operational performance, a sound investment strategy, and intensive efforts from officials at all levels, from top management to rural branches. Dr. Toufic Ahmad Choudhury, former Director General of the Bangladesh Institute of Bank Management (BIBM), highlighted two major factors behind Islami Bank's success: trust and religious sentiment, he told a daily.
Trust is like a vase: once it’s broken, it can be repaired, but it will never be the same. This is crucial because consumer trust in banking influences behaviour, driving loyalty and creating revenue opportunities when nurtured properly, or leading to risks if customers disengage. The impact of mistrust is particularly evident during financial difficulties. People trust Islami Bank not only for its Sharia-based banking principles, which emphasise profit and loss sharing and prohibit interest collection and payment but also for its commitment to these values.
Unlike conventional finance, plagued by opacity and inequity, a former CEO of a private commercial bank said Islamic banking boasts a transparent structure devoid of intricate black boxes that demand a genius to unravel. Islami Bank Bangladesh has emerged not merely as a religious sentiment but as an innovative force, driven by its welfare-centric business model that attracts investments from the Muslim population while catering to diverse financial preferences. So, the success of IBB was inevitable.
According to a central bank official, Islami Bank Bangladesh achieved remarkable growth due to its purpose-driven approach, proactive strategies, and greater transparency. In this digital era, Islami Bank has increased customer engagement by improving its range of digital services. This has broadly been a success, with growing numbers of consumers across all demographics regularly interacting through apps and other means of digital engagement.
He mentioned that the Islami Bank secured the top position (40.74%) in remittance mobilisation amounting to Tk 353.48 billion during October-December 2023 thanks to its CELLFIN APP that helps millions of expatriate Bangladeshi to remit money instantly to their family, firms and friends.
Another aspect of Islami Bank's rebound is its strategic investment in rural areas, which yields higher returns. The bank targets millions of women, small traders, and vendors, both Muslim and non-Muslim, who trust Islami Bank, deposit their money for higher returns, and repay their investments promptly, resulting in a nearly 99 per cent recovery rate. However, many media outlets have overlooked this strength, instead focusing on a portion of the bank’s operations that the CEO claims is misleading.
In conclusion, both the media and banks should concentrate on sustaining the growth of Islamic banking through responsible media intervention. The media profoundly influences public perception and can play a pivotal role in correcting misconceptions. Timely and thoughtful media engagement is essential for deepening public understanding of Islamic banking, attracting a broader audience, and supporting the sector’s sustainable development in Bangladesh.
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