Deposits at Bangladesh’s Shariah-compliant banks fell by nearly BDT 130 billion in June 2026, according to central bank data published on Tuesday.

The monthly Islamic Banking and Finance Statistics (IBFS) report, compiled by Bangladesh Bank’s statistics department, put total deposits in the country’s Islamic banks at BDT 4.67 trillion at the end of June, down from BDT 4.8 trillion a month earlier.

Banking industry insiders described the fall as sharp and unusual, linking it mainly to the fallout from the appointment of a new chairman at Islami Bank Bangladesh PLC. Depositors were expected to shift funds to other Shariah-compliant lenders. Instead, many pulled their money out of Islamic banks altogether, driving down deposits across the sector.

The shift was reflected in conventional banking, where deposits rose by BDT 540 billion in June to BDT 17.71 trillion from BDT 17.17 trillion a month earlier, according to central bank data.

Bangladesh Bank spokesperson and executive director Arif Hossain Khan said the regulator was fully supporting the recovery of Shariah-compliant lenders.

“When instability hit Islami Bank in June, Bangladesh Bank extended roughly BDT 170 billion in liquidity support. Inbound remittances through the bank also dropped that month. Conditions have improved markedly since July, however, and Islami Bank is now clearing daily transactions using its own reserves. Bangladesh Bank remains committed to helping other Shariah-compliant banks recover their losses,” Khan told Bonik Barta.

Along with Islami Bank Bangladesh PLC, the country’s Shariah-compliant banking sector includes Al-Arafah Islami Bank, Shahjalal Islami Bank, Standard Bank, ICB Islamic Bank, Social Islami Bank, EXIM Bank, First Security Islami Bank, Union Bank and Global Islami Bank. Five of these lenders are now being merged into a single entity after widespread corruption and governance failures left them financially distressed.

The fall in deposits at Shariah-compliant banks in June 2026 broke a five-month streak of continuous growth. The sector’s total deposit balance opened the year at BDT 4,736.57 billion in January, rising steadily to BDT 4,760.55 billion in February, BDT 4,789.87 billion in March and BDT 4,808 billion in April.

The decline followed the late-May appointment of former Deputy Governor Khurshid Alam as chairman of Islami Bank — a move that triggered strong resentment among staff and customers and prompted a wave of panic withdrawals. Bangladesh Bank later dissolved the board, removed Alam and appointed an administrator.

Mohammad Jamal Uddin Mazumder, additional managing director of Islami Bank Bangladesh PLC, said the deposit outflow had yet to reverse.

He told Bonik Barta: “Transaction volumes have recovered slightly from June, but operations remain short of normal. Funds withdrawn during the panic haven’t fully returned. Any social media commentary around the bank weighs on daily transactions.”

Shariah-compliant banking in Bangladesh began in 1983 with the launch of Islami Bank Bangladesh. Its early success led to the creation of 10 more full-fledged Islamic banks, while conventional lenders gradually added Shariah-compliant branches and windows. Those units initially struggled to attract deposits, but have gained ground as governance crises at dedicated Islamic banks pushed customers towards conventional lenders offering Islamic services.

Bangladesh now has 10 full-fledged Shariah-compliant banks. Seventeen conventional lenders also operate Islamic branches, while 12 run Islamic windows.

Pubali Bank PLC, one of the country’s major private lenders, now holds more than BDT 100 billion in Islamic banking deposits through its branches and windows and plans to expand further.

“We currently operate 12 Islamic banking windows and have applied to the central bank to open 87 more, alongside several dedicated branches,” Mohammad Ali, managing director of Pubali Bank, said. “If approved and fully operational, our Shariah-compliant deposits are projected to top BDT 400 billion.”

An analysis of central bank data reveals the decline in deposits was concentrated in full-fledged Islamic banks. Their deposits fell by BDT 172.62 billion, from BDT 4,061.41 billion in May 2026 to BDT 3,888.78 billion in June. By contrast, Shariah-compliant branches and windows operating within conventional banks saw deposits rise.

Deposits at 58 Islamic branches of conventional banks rose 6.46 percent in June to BDT 496.80 billion from BDT 466.67 billion in May. Deposits through 348 Islamic windows increased 5 percent to BDT 285.94 billion from BDT 272.33 billion.

On an annual basis, deposits at Islamic branches and windows of conventional banks grew 38.73 percent and 22.67 percent respectively, while full-fledged Islamic banks recorded a 1.07 percent decline.

The sector’s problems stem from financial scandals under the now-ousted Awami League government that affected both state-owned and Shariah-compliant banks. Central bank audits found that industrial conglomerate S Alam Group had secured control of First Security Islami Bank, Union Bank and Global Islami Bank, siphoning more than 80 percent of their combined loan portfolios through shell companies.

After taking control of Islami Bank Bangladesh and Social Islami Bank in 2016, the group extracted nearly BDT 800 billion from Islami Bank and about BDT 100 billion from Social Islami Bank through its own entities and proxy accounts.