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Bangladesh’s Islamic banking sector, despite steady growth in investments and assets, is losing ground in deposits and overall market share, according to the latest data from Bangladesh Bank.

Islamic banks’ investments rose 12.52 per cent year-on-year to Tk 5.67 trillion in May 2025, up from Tk 5.04 trillion a year earlier. Their total assets also expanded by 13.56 per cent, reaching Tk 9.21 trillion in May 2025 from Tk 8.11 trillion in May 2024.

However, their performance in deposits and remittances has weakened. Deposits grew by only 3.19 per cent over the same period, from Tk 4.29 trillion to Tk 4.42 trillion. This is well below the overall banking sector’s 8.90 per cent deposit growth, driven largely by conventional banks, which posted 10.66 per cent growth to Tk 15.33 trillion.

As a result, Islamic banks’ share of total deposits slipped to 22.4 per cent in May 2025, down from 23.64 per cent a year earlier. Their share of remittances also dropped sharply—from 36 per cent in early 2024 to around 31 per cent in May 2025. The volume of remittances handled by Islamic banks fell from $764 million in November 2023 to $660 million by May 2025, which central bank officials linked to weak management and eroding worker confidence.

Conventional banks outpace Islamic lenders

While Islamic banks saw investment growth, conventional banks continued to dominate. Their investments climbed 10.78 per cent to Tk 16.90 trillion in May 2025, accounting for about 75 per cent of the market.

Bangladesh Bank figures also show that Islamic banks’ share in agent banking deposits rose 14.41 per cent year-on-year, from Tk 206 billion in May 2024 to Tk 235 billion in May 2025. Yet, their overall market influence remains under pressure.

Experts call for reforms

“Islamic banks in Bangladesh have shown solid growth in investments and assets over the past year, reflecting their increasing role in the economy,” said Dr Masrur Reaz, Chairman of Policy Exchange Bangladesh.

But he cautioned that slower deposit growth and declining remittance shares pose challenges. “Islamic banks need to strengthen customer confidence, improve operational efficiency, and expand their reach in both deposits and remittance services for greater sustainability,” he added.

Banking sector analysts noted that the sector’s weaker deposit performance compared with conventional banks highlights a competitiveness gap that could widen unless structural improvements are made.