"The year 2015 will likely be one of the continued challenges for bank executives in Bangladesh. Banks will need to make strategic decisions, driven by capital constraints and demands for improved return on equity, about divesting or acquiring in areas where they believe they can compete and win", Md. Shafiqur Rahman said.Faruk Ahmed
Managing Director of Social Islami Bank Limited Md Shafiqur Rahman has reignited a hot debate on Islamic banking among the bankers saying that there is no scope in Islamic banking to exploit depositors.
"Due to its unique methodology based on Islamic sharia, it has become the main driver of poverty stricken Asian economy", he said during an exclusive interview with The Daily Observer.
Some CEOs of conventional banks in Bangladesh, during the talks of the bank CEOs in the ongoing series of reports, have blamed a policy of Islamic banks to exploit their depositors after the CEO of an Islami bank termed the interest based conventional banking as "greedy banking".
The CEO of SIBL said the depositors of Islamic banks are not shareholders rather business partners under a certain contract, where profit or loss is shared between the two parties-the bank and the depositor. This relationship is viewed in a wrong way by some quarters, he said.
Md. Shafiqur Rahman, a seasoned banker, has a professional banking career spanning over three decades. He joined Social Islami Bank Ltd. (SIBL) in 2010 as Deputy Managing Director and assumed the post of Managing Director on 3rd January, 2013.
SIBL, a second-generation bank operating since 22nd November, 1995 based on Shariah Principles, has now 100 branches all over the country.
Shafiqur Rahman started his career in Sonali Bank as Probationary Officer in 1977. Later he worked in Agrani Bank, Jamuna Bank and South-East Bank in various key positions.
He took part in many global standard professional programmes in USA and UK.
A group of economists consider the role of interest in the conventional banking mechanism as a major negative factor that contributes to cyclical fluctuations in the economy.
"Bangladesh is likely to be the biggest hub for Islamic financial products as people consider interest as a deadly weapon and depositors find higher returns in Islamic banking, " Rahman said.
With its impressive 20 per cent global growth, Islamic banking has already found a niche market in the country's banking industry due to its unique sharia based banking system where people get higher returns against their money put in banks", he noted.
As the demand from customers is mounting day by day, conventional banks are focusing more on Islami banking to keep the growth for their survival. Many banks in Western economies are also inclining to Islamic finance, SIBL chief said.
In Bangladesh, 15 conventional banks including a local bank of global bank have already introduced financial tools and products in compliance with sharia through specialized branches, he noted.
But some people doubt whether such Islamic windows fully comply with Sharia. They raise a question as to whether these organisations are truly Islamic, when their capital is not completely halal or permissible from the Sharia point of view.
The debate over Islamic banking has already raged the global banking in many ways. The question has been raised whether growing Western interest in Islamic finance could damage the industry by compromising its religious principles.
"The argument in the basic principle of Islamic finance is that you should only finance activities that are consistent with Shariah and conventional riba (interest) is not allowed here", the CEO of SIBL told the daily while discussing the principle of Islamic finance.
A controversial plan by Goldman Sachs to issue Islamic bond ignited a debate on whether conventional banks in the West should be allowed to engage in Islamic finance.
"Our judgment is always on the structure of the transaction, and whether it is permissible or not and whether it has the necessary Shariah requirements", Mr. Rahman said.
"Despite hard criticisms from the West, Islamic banking has emerged globally as a response to both religious and economic exigencies and Asia is likely to be the main driver of Islamic banking growth in the near future, given the untapped potential in India, Bangladesh and Indonesia".
During the talks with the daily, the SIBL chief focused on different operational issues of the banking industry as well as on some challenging issues.
"The year 2015 will likely be one of the continued challenges for bank executives in Bangladesh. Banks will need to make strategic decisions, driven by capital constraints and demands for improved return on equity, about divesting or acquiring in areas where they believe they can compete and win", SIBL chief told the daily.
Mr. Rahman emphasized that the form and shape of any banking system should be evaluated against the needs of the economy, the economics of the banking business, and stability concerns. According to him, banks in Bangladesh should focus more on financial inclusion as many people still remain out of the banking coverage.
"With the proactive role and prudent guidelines, banks have achieved substantial success in financial inclusion over the years. In 2015, we must consolidated these achievements and the more inclusion of unbanked people to banking activities will speed up money flow and revamp the economy as well", he said.
The SIBL chief also said that the big challenge for the banks in 2015 will be the capital issue as the banks are now under pressure with mounting classified loans and extreme margin requirement.
"The BASEL III is coming in 2015 with many great challenges for the banks in Bangladesh and will change many things of the industry. We have already started the ground work to implement the BASEL III for bank companies in 2014", he said.
"The most significant challenge the banking sector of Bangladesh will be facing while implementing BASEL III is the need to balance the interests of the businesses against the needs of the regulator", he added.
The basics of BASEL III is that large internationally active banks will have to hold levels of common equity equal to at least 7 per cent of their assets, much higher than the roughly 2 percent international standard or 4 percent standard for large US banks.
BASEL III also mentions, by 2015, the banks will have to begin building a 2.5 per cent "buffer" of capital that must be fully in place by January 2019. If the banks fall below the buffer, regulators could force them to hold onto more of their earnings to augment their capital, which means the companies will have less money on hand to pay dividends or offer large compensation packages.
"As Bangladesh is in stage of implementing BASEL II, we may think well ahead about Tier 1 capital rule under BASEL III, which ultimately will be fully effective from January 2015, with the capital conservation buffer phased in between January 2016 and January 2019," he said.
"Before implementing BASEL III, top banks have to take steps to restructure their own internal risk rating models to determine the risk weightings for their assets", Md Shafiqur Rahman, the CEO of SIBL concluded.