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Islami Bank Bangladesh PLC (IBBPLC) has been in serious financial problems since last year due to lending irregularities and other factors. Two national and international companies’ moves to withdraw from the directorship and sell their shares in the recent two months (June and July), as well as the bank’s new decision on loan disbursements, have sparked additional criticism.
Industry insiders report a new wave of concern among Islami bank’s investors and depositors.
According to economists and bankers, if these challenges of Islami banks are not handled, the entire economy, including the country’s financial sector, will face a serious crisis.
Investors and depositors are concerned about the safety of their funds. When this began last year, a large sum of money was removed from Islami Bank by its depositors.
The majority of these depositors are from the district and upazila levels, and this might be restarted.
Data analysis of Islami Bank’s financial report from last year revealed that depositors withdrew Tk17,783 crore from the bank in 2022.
This bank’s liquidity crisis has reached the point where it is unable to deposit the complete sum of penalty interest.
As a result, Bangladesh Bank has given the bank till September to strengthen its liquidity and deposit the penalty funds.
“If the fate of this bank is similar to that of Farmers Bank, the economy will face huge impacts because it has a strong contribution to our economy especially in deposit and remittance earnings,” said Ahsan H Mansur, executive director of Policy Research Institute (PRI).
Regarding depositors’ concerns, this former IMF economist said: “The bank’s depositors should now understand where they have deposited their money. Because the government and Bangladesh Bank are blind to this bank. They have not taken any action till now.”
He added that the bank was handed over to a group as part of its liquidation.
Seeking anonymity, a top official of Bangladesh Bank said that if something wrong happens to Islami Bank, it will affect the entire banking sector as well as the country’s economy.
Nothing can be done due to the lack of a green signal from the government, the BB official added with regret.
However, the bank’s Managing Director Mohammed Monirul Moula did not respond to multiple phone calls seeking their comment in this regard.
It’s being estimated that 2,00,00,000 customers of Islami Bank have deposited about Tk1,50,000 crore in the bank.
According to the information of Islami Bank, about 30% of the country’s import, export and repatriation income through the banking sector is through the bank.
However, the crisis is not a recent one. The Islami Bank crisis started in 2017.
In 2017, S Alam Group of Chittagong took control of the bank and right after that investors started selling their shares. S Alam Group took sole control of the bank by buying these shares.
The then chairman, vice chairman and MD of the bank were forced to resign on January 5 of that year.
Then domestic and foreign shareholders started leaving the bank one by one.
In April 2017, local entrepreneur Ibn Sina Trust sold all the shares.
Then in May of that year, Islamic Development Bank (IDB) sold the shares.
In September 2017, Kuwait Finance House sold the shares of the bank.
The government’s Investment Corporation of Bangladesh (ICB) vacated the shares and directorships in June this year.
Now the Arabsus Travel and Tourist Agency of Saudi Arabia gave up shares and directorships last July.
Loan disbursement restricted
Islami Bank branch managers can no longer give any loans. Even departmental and zonal heads cannot sanction any loans. Besides, they cannot increase the loan limit.
Now all the loans will be given with the approval of the head office.
The bank sent a letter at the branch level on July 20 to implement the decision of the board regarding loan approval.
The letter stated that the MD will approve any type of new loan or increase in loan limit up to Tk50 lakh. The executive committee of the bank will approve the increase of loan or loan limit of up to Tk50 lakh.
However, in the case of agricultural loans up to Tk50 lakh, the earlier powers will remain in the hands of branch managers.
Earlier, branch managers and zonal heads in all cases could approve loans up to a maximum of Tk70 lakh depending on the rank, a major portion of which went to rural entrepreneurs and businessmen.
As a result of the new decision, the opportunities for rural entrepreneurs to get loans have decreased.
This decision was taken in the 324th meeting of the Board of Directors of Islami Bank on June 19.
It is known that the private sector Islami Bank took such a decision after falling into a liquidity crisis due to various irregularities.
Earlier, Islamic Bank Bangladesh, the country’s largest private lender in terms of deposit and credit, had taken Tk8,000 crore on the last working day of 2022.
Bangladesh Bank disbursed this loan on December 29 at an interest rate of 8.75%.
However, Islami Bank has 394 branches across the country. Under each branch there are several sub-branches.
BB worried about fragile Liquidity
Earlier in a report Bangladesh Bank has said that the bank is now suffering from a liquidity crisis due to various irregularities.
According to a report from the Bangladesh Bank, the bank is now suffering from a liquidity crisis due to various irregularities. It is not able to maintain the cash reserve ratio (CRR) as per requirements by the central bank. The bank is constantly being fined for this. In this situation, the central bank is keeping the transaction activities of the lender normal by occasionally lending money.
The liquidity crisis of this bank has reached such a level that it is not able to deposit the entire amount of penalty interest.
For that reason, Bangladesh Bank has given the bank till September to improve the liquidity situation and deposit the penalty money.
Directorship withdrawal
The Arab-based company Arabsus Travel and Tourist Agency sent a letter on July 5 saying that they will not be in the position of director of Islami Bank.
It was then approved by the Board of Directors meeting on July 26. Musaid Abdullah A AlRajhi served as the director of Islami Bank for a long time on behalf of Arabsas.
Thus, Arabsas Travel and Tourist Agency, which owns 9.99% shares in the Sharia-based bank, is withdrawing itself from the management and ownership of the lender.
Officials at Islami Bank confirmed the plan to sell shares of Islami Bank held by the Riyadh-based company.
However, earlier this year, the government institution Investment Corporation of Bangladesh (ICB) withdrew from the management by giving up the entire share of Islami Bank.
Investors sell share
After withdrawing its directorship from the board of Islami Bank Bangladesh PLC, a Saudi Arabian investor is now selling its shares.
Arabsas Travel and Tourist Agency, which owns 9.99% shares in the sharia-based bank, is withdrawing itself from the management and ownership of the lender.
Officials at Islami Bank confirmed the plan to sell shares of Islami Bank held by the Riyadh-based company.
Seeking anonymity, an Islami Bank official told Dhaka Tribune that: “Soon after the establishment of Islami Bank, the Saudi company was associated with it. But now the Saudi company is selling its shares due to good profits from others.”
In its shareholding report for July this year, Islami Bank said Arabsas Travel and Tourist Agency withdrew the directorship by sending a letter on 5 July, and the bank approved it on 26 July in a board meeting. Earlier, Musaid Abdullah A Al-Rajhi served as the director of the bank for a long time on behalf of the company.
Earlier this, the government institution Investment Corporation of Bangladesh (ICB) withdrew from the management by giving up the entire share of Islami Bank in June this year.
Before that, ICB and several foreign companies sold the shares of this bank.
In April 2017, local entrepreneur Ibn Sina Trust sold all the shares.
Then in May of that year, Islamic Development Bank (IDB) sold the shares.
In September 2017, Kuwait Finance House sold the shares of the bank.
Now Arabsas Travel and Tourist Agency.
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