Moody’s: Islamic banks in Bangladesh face higher asset risks

Dhaka, Nov 1 (EFE).- Credit rating agency Moody’s warned Monday that the Islamic banks in Bangladesh, which make up almost 20 percent of the sector in the Asian country, have higher asset risks and with lower loss buffers than conventional banks.

“Islamic banks also have weaker capitalization than conventional banks because of higher financing growth when compared to conventional peers and structurally weaker profitability,” said Moody’s in a report.

Islamic banks in Bangladesh have increased their share of corporate financing in recent years, against a decline in traditional private banking.

“Rapid growth in Islamic financing for corporates in a highly fragmented market could be due to poor underwriting standards,” Moody’s Analyst Tengfu Li said in the report.

Islamic banks are based on a system of savings and credits and not on bank interest, expressly prohibited in the Quran.

It also does not get linked with other activities prohibited in the Quran, such as alcohol or gambling, among others.

They also demand greater involvement of capital in the real economy.

However, Mohammed Nurul Amin, former managing director of Meghna Bank and NCC Bank, and former chairman of the Association of Bankers Bangladesh, told EFE that “the risk factor is common for both Islamic and conventional banks.”

“The interest calculation in Islamic banks is different from conventional banks. But their quarterly account, half-yearly account, annual account, balance sheets – these are similar to traditional banks,” he said.

“The calculation system is different but I don’t see anything different in risks calculation,” Amin stressed.

According to an International Monetary Fund (IMF) report published in May 2018, Islamic banks are operational in 60 countries and their assets are estimated at more than $2 trillion.

Most of the Islamic banks’ assets are concentrated in the Gulf countries and Malaysia, although according to the IMF, its market share in Bangladesh is significant, amounting to almost 20 percent.

Bangladesh’s first such bank, the Islami Bank Bangladesh Limited was founded in 1983, and currently eight of the country’s 56 banks are completely Islamic, according to a 2019 study by the Islamic University of Chittagong, published in “The Cost and Management” magazine. EFE

am-daa/sc