Deposit Concerns Amid Islamic Bank Consolidation

Amid the ongoing consolidation of five Islamic banks in Bangladesh, significant concerns have emerged over a recently announced deposit protection scheme. Branches across the country have reported large crowds of depositors seeking to withdraw funds, leading to transaction delays and operational disruptions caused by inconsistent guidance. Frontline staff and branch managers have struggled to provide clear explanations due to the absence of unified instructions, leaving many customers anxious and confused.

While no incidents of unrest have been reported so far, the situation has already dented depositor confidence. Banking sources indicate that nearly BDT 20 billion was withdrawn from the five banks over the past three working days, underscoring the scale of public concern. Analysts warn that in periods of structural change, a lack of transparency and coordinated communication can amplify fear and instability, potentially jeopardising the smooth functioning of the system.

In response, Bangladesh Bank has introduced a special deposit protection scheme for the five consolidating Islamic banks. Under the scheme, each depositor’s principal amount of up to BDT 200,000 is fully protected and available for withdrawal at any time. Funds exceeding this limit will be released in stages. Current and savings accounts will allow withdrawals in instalments over a fixed period, potentially extending up to 24 months. For fixed deposits, tenures and profits will be determined based on prevailing market conditions.

Despite these assurances, gaps between policy and implementation have become apparent. In many branches, even the guaranteed BDT 200,000 is not immediately accessible. Some depositors can withdraw only their principal, while accrued profit or interest remains blocked. Regular profit payouts for fixed deposits have been suspended, and though savings accounts may show credited profit, it cannot be withdrawn.

The current situation can be summarised as follows:

Administrators appointed to two of the banks noted that under current instructions, payments exceeding the insured limit cannot be made. They expressed hope that as the situation stabilises, normal transaction facilities will gradually resume.

Experts emphasise that the success of the consolidation now largely depends on clear directives and consistent messaging. By ensuring transparent and continuous communication with both bank staff and customers, depositor confidence can be restored, paving the way for the consolidation process to proceed smoothly.