To salvage Islami Bank Bangladesh the interim government will have to recover money by seizing all assets of S Alam Group responsible for the present sorry state of the lender.
S Alam Group and its sister concerns have reportedly taken around Tk 500 billion in the last seven and a half years in violation of banking rules, making Islami Bank suffer from a severe liquidity crisis. The business conglomerate did so by forcefully taking control over the bank in 2017, leveraging its political connection with the then Awami League-led government.
After the resignation of the Bangladesh Bank governor, Abdur Rouf Talukder on Monday, the BB announced that it would reduce liquidity support to nine ailing banks, including Islami Bank. However, the bank had been running on liquidity support for the past 18 months.
"The interim government should take steps to recollect money by seizing all assets of S Alam Group and the entities that received loans [and defaulted on them]," said Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD).
Meanwhile, after the ouster of Sheikh Hasina-led government on August 5, officials recruited before the 2017 takeover took to the streets demanding removal of those who have been recruited by S Alam Group.
Clashes erupted in front of the bank's head office in Dhaka on Sunday between the two groups, leaving 10 people bullet injured. The protesters claimed they had been deprived of official benefits and promotions for a long time and demanded resignation of Islami Bank top officials, including its managing director.
Additional managing director Muhammad Qaisar Ali was forced to resign last week, according to an Islami Bank official.
Islami Bank Chairman Ahsanul Alam is the son of S Alam Group proprietor Saiful Alam. Mohammed Munirul Moula, managing director & CEO of the bank, could not be reached for comments.
The amount of money lent to S Alam Group is equivalent to one-third of the total loan disbursement by Islami Bank. The loans were taken through known and anonymous persons and entities. Even new companies were created to take loans in their name, according to media reports.
Some bank officials believe that the actual amount of money laundered from the bank is even higher than what has been revealed so far.
Islami Bank was the best performing bank in the country just a decade back. The bank had surpassed all other banks in the country in terms of deposits, loan recovery and other crucial indicators.
After a hostile takeover, the board's chairman and managing director along with a number of directors were replaced overnight.
Almost all the top officials and department heads of the bank were chosen from close associates of the owner of S Alam Group, Saiful Alam. He even appointed a close aide as DMD of the bank.
The lender has reported a profit of Tk 6.35 billion for 2023, while negative cash flow from operations was a whopping Tk 22 billion in the year.
However, its non-performing loans showed 4.28 per cent of the total loans that the bank disbursed up until 2023, which is lower than the average NPL rate -- 5.93 per cent -- of local private commercial banks.
That makes the liquidity shortage quite puzzling.
"The figures are fictitious. There is a lot of data manufacturing," said Ahsan H Mansur, an executive director of Policy Research Institute of Bangladesh last month when asked about the data mismatch.
Banks calculate profits on an accrual basis even when it has not received all the cash. When default loans rose, the bank did not receive more of the due interest payments. So, the profit shown does not portray the reality.
"Islami Bank has kept its non-performing loans rate low by loan rescheduling strategy," said Mr Mansur.
Islami Bank is the largest bank now in terms of deposits. But its deposit growth slowed down over the last four to five years, bringing its average deposit growth down to 12 per cent annually for the period of 2009-2023. During the same period, the average lending growth was 21 per cent.
The huge gap indicates aggressive lending by the bank. But instead of securing high interest income, the bank saw a significant number of loans turn sour, leading to negative cash flow for 2022 and 2023.
This is the backdrop to the BB keeping the bank alive by extending liquidity support.
After the political transition, the central bank instructed banks not to honour cheques worth more than Tk 10 million of the nine banks, including Islami Bank.
A central bank official said that since depositors and borrowers of these ailing banks will not be able to withdraw large amounts of money, they will now require less liquidity support.
How the deterioration began
When S Alam Group took control of Islami Bank in early 2017, it had a loan of Tk 36 billion in the name of three sister concerns. The group was a client of the bank's Khatungonj branch in Chattogram.
At that time, loans of the bank were worth Tk 616.41 billion while deposits were Tk 681.35 billion. The number of employees at the bank was less than 10,000.
After the ownership change, new branches were opened to increase deposits and another 10,000 people were recruited mostly from Patiya in Chattogram, where the business group is based.
At the end of 2023, deposits in Islami Bank grew to Tk 1534.56 billion and loans to Tk 1600.26 billion. That means the bank lent more money than what it had received.
This additional money came mainly from the Bangladesh Bank in special liquidity support.
As S Alam Group and accomplices forced most of the board members out, most entrepreneurs and sponsor shareholders, including Islamic Development Bank (IDB), Dubai Islami Bank, Al-Rajhi Group, Kuwait's government bank Kuwait Finance House and Saudi company Arabsus Travel and Tourist Agency gradually offloaded their holdings.
Local major shareholders, including Jamaat-affiliated organisations Ibn Sina and Bangladesh Islamic Centre, also gave up their stakes in Islami Bank.
Foreigners' stake was as high as 52 per cent before S Alam Group appeared on the board, which gradually fell to 12.96 per cent in July this year.
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