Bangladesh Bank : The funding shortfall of five Islamic banks

1. Issue Overview:

   • The Bangladesh Bank (BB) has confirmed warning five Shariah-based banks about persistent deficits in their current account balances with the central bank.
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2. Banks in Question:

   • The five banks facing the issue are Islami Bank Bangladesh, Social Islami Bank, First Security Islami Bank, Union Bank, and Global Islami Bank. All of these banks are under the control of S Alam Group.
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3. BB's Position:

   • The BB spokesperson and executive director, Md Mezbaul Haque, clarified the BB's position in a press conference.
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4. BB's Warning Letter:

   • The BB issued a cautionary letter dated November 28 to the banks, stating that they could be removed from the clearing platform if the deficits in their current account balances were not rectified within 20 days.
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5. Clarification on Decision:

   • Mezbaul Haque emphasized that while a warning was issued, no final decision to remove the banks from the clearing platform had been made yet.
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6. Determining Authority:

   • The determination to remove the banks from the clearing platform would be made by the payment system department of the BB.
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7. Structural Deficits:

   • Mezbaul Haque mentioned that the Shariah-based banks were suffering from structural deficits and assured that the BB would work on addressing this issue.
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8. Background on Current Account:

   • The current account with the central bank is used for clearing and settlements of payments between commercial banks.
   • Banks are required to maintain a certain amount of funds as cash reserve ratio (CRR) and statutory liquidity ratio (SLR) with the central bank, which are deposited in the current account.
   • The balance in the current account cannot be negative.

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10. Reasons for Deficits:

    • The banks allegedly continued disbursing loans without having enough liquidity, resulting in a negative current account balance.
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11. Next Steps:

    • The BB is expected to address the structural deficits faced by these banks.

This summary covers the key points in the provided information about the current account deficits faced by the five Shariah-based banks in Bangladesh.