‘Islamic banks at greater risk as customers get Covid-19 benefits’

Economic Reporter :
The Islamic banks are at a greater risk of losing profits in light of the government’s decision that customers will not have to repay bank loan instalments till December this year, as the Covid-19 pandemic has severely hurt the economy, said Md Mahabub-ul-Alam, managing director and CEO of Islamic Bank Bangladesh Limited.
He made the comments at a webinar titled “Covid-19 and Risk Management of Islamic Banks, Proposal for New Normal Scenario” jointly organised by Bangladesh Institute of Bank Management (BIBM) and The Global University of Islamic Finance (INCEIF) on Saturday.
He said such benefits provided by the government will not have a major impact on the profits of conventional banks, but Islamic banks are at a greater risk as they do business on a partnership basis.
“Islamic banks have raised their concerns to the central bank. The Shariah Advisory Committee of Bangladesh Bank is working on this. However, no suggestions have come on this topic yet,” said Mahabub-ul-Alam.
According to a recent second quarter (April-June) report released by the central bank on Islamic banks, during the pandemic, deposits and investments grew by 2.35 percent and 3.05 percent respectively, compared to the first quarter (January-March). According to the report, Islamic banks now account for a quarter of the banking sector.
Islamic banks account for 25.04 percent of total deposits, 24.93 percent of investments or loans and 27.12 percent of remittances of this sector.
The keynote address of the webinar was prepared by Dr Md Mahabbat Hossain, assistant professor, BIBM, and was presented by Dr Shah Md Ahsan Habib, professor and director (training), BIBM.
Dr Ahsan Habib said that conventional and Islamic banks are at almost the same risk due to Covid-19. They also have similar strategies for dealing with risks other than Shariah issues.
He advised the Islamic banks to set up a joint fund with the future in mind. This fund will help to deal with any kind of financial or cyber-attack risk.
Dr Ziyaad Mahomed, director of Executive Education and E-Learning, INCEIF, said, “The type of risk and management will be different as conventional banks are interest-based and Islamic banks are partnership-based. However, in doing business on a partnership basis, the customer has to bear the loss, so the risk incurred by Islamic banks is a bit less.”