Social Islami Bank faces weakened funding and liquidity 

The possible withdrawal of central bank support can hurt depositor confidence.

Social Islami Bank’s liquid assets will come under strain partly as persistent negative news may weigh on depositor confidence, said S&P Global Ratings.

The Bangladesh-based bank’s asset risks and weakened funding and liquidity that have heightened due to recent political unrest in Bangladesh. 

The political unrest has also highlighted “significant governance issues” in Bangladesh’s Islamic banks, S&P said in a report where it placed SIBP on review for a downgrade.

“We expect SIBP's liquid assets, consisting mainly of cash and placements, to come under strain because of the persistent negative news surrounding the bank's governance and shareholding structure,” S&P said. 

“A potential withdrawal of the central bank's liquidity support to the country's Islamic banks, including SIBP, can also hurt depositor confidence in the bank because of lack of access to the repurchase agreement (repo) facility available for conventional banks,” it added.

However, S&P still expects that SIBP will see a high level of government support for its deposits in times of need.

S&P said that it will assess whether SIBP can maintain or restore its funding and liquidity. This includes access to emergency liquidity from the central bank.

“We regard SIBP's corporate governance as a weakness, indicated by its growing vulnerability to funding shocks and limited liquidity buffers,” S&P said.