Islami Bank in crisis 15 months into changeover

Islami Bank Bangladesh Limited (IBBL), the country’s largest private sector bank, has fallen into deep crisis in just one and half years of the change in ownership, mainly due to mismanagement and internal conflicts, officials said.

Bankers, depositors, investors and economists are worried as they think the crisis in the country’s largest private bank will affect the whole economy.

Earlier, the country’s best performing public sector bank-Basic Bank - faced the same fate. The bank is in deep crisis in this government’s tenure due to a Tk 45 billion loan scam.

Officials said that this is the first time Islami Bank has fallen into a liquidity crisis after the change of the ownership and management. The bank which was once a popular bank to businesspeople for sanctioning loans, has narrowed down its loan programme. Once depositors used to come to this bank and now the bank is in search of depositors.

In such a situation, there is also a changeover in phases in the bank’s management. One additional managing director and three deputy managing director had to resign. The bank’s vice chairman Ahsanul Alam also resigned following internal conflict within the management.

On 17 April, the bank’s chairman Arastoo Khan resigned. Officials said that there was a distance between the bank’s ownership and board.

Former Bangladesh Bank governor Salahuddin Ahmed told Prothom Alo that there was lack of clarity to many about the changeover of Islami Bank’s management and ownership.

Salahuddin also believes that investment and deposit ratio should not have been raised to 92 per cent.

He said he thinks a message has been sent to the depositors that a business group controls this bank.

 “The confusion should be removed. As the bank is the largest bank in the country, its harm means the country’s harm. Bangladesh Bank should look into this. This means that it should be ensured that the board will play its due role and there will not be any political interference in the bank’s operations,” he said.

Former advisor to the caretaker government AB Mirza Azizul Islam said: “It seems that family control has become high in Islami Bank and the resignation of the chairman Arastoo Khan last week might have been due to this family control.”

He said that if the changeover that took place one year and half years ago had brought something good, it would be welcomed. “However, we have seen problems and volatility. There is doubt as to how much they will be able overcome this,” he said.

He said that in large bank like Islami Bank, skilled and morally strong people should come to the board.

“A new chairman has come. Let us see how he will perform. We have to wait to see whether he will bow down to any pressure or not,” he said.

On 5 January, 2017, in a close-door meeting at a city hotel, Islami Bank’s chairman, several directors, managing director and heads of different committees resigned and new people took charge. It was said that the change was made to make the bank free from people who belong to Islamist party Bangladesh Jamaat e Islami ideologies.

Former secretary Arastoo Khan became chairman of the bank.  Abdul Hamid Miah who was managing director of  Chattogram based S Alam group owned Union Bank, became managing director of Islami Bank. S Alam group reportedly played role in the changeover by purchasing new shares from the market. 

Abdul Hamid Miah finished his tenure on 9 February. He told Prothom Alo that he was the bank’s managing director for 395 days.

“During my tenure, there was no crisis in the bank. I do not understand what happened in the last three to four months,” he said.

On 11 February. Mahbub ul Alam became Islami Bank’s managing director. Despite repeated attempts, he could not be reached for comment. This Prothom Alo correspondent was told that the board has not given him permission to talk about the crisis.

Dhaka University’s food and nutrition department professor Prof Nazmul Hassan became the new chairman of the bank. This Prothom Alo correspondent did not find him at the bank and then went to the university for his comment about the crisis.

He  said: “ I do not want to talk about bank at least when I am at the university.” He, however, said that the overall condition of the bank was good.

Islami Bank was launched in 1983. Till Monday, it had 8,951,149 clients and 13,000 employees.

Less deposit but aggressive loan sanction

 Data collected from the bank shows that before the changeover, there was an investment fund of Tk 100 billion. However, after the changeover, the bank has given more loans than it collects money from the depositor. This is the main cause of the crisis. Even the bank has withdrawn its money from the government’s Islami investment bonds.

Officials said that from the beginning of the current year till 22 April, the bank has Tk 14.66 billion in deposits while it has sanctioned Tk 43.15 billion in loans. The bank has sanctioned three times higher loans than its deposits. As a result, it has to cross the loan-deposit ratio limit of 89 per cent the central bank has fixed. Islami Bank’s loan-deposit ratio is now 92 per cent. The bank has sanctioned Tk 20 billion more loan than. It has to either return the loan or increase the deposit.

Bank officials said that in present flow of deposit, it is hard for the bank to balance the loan-deposit deficit.

Foreign investment reduced

Islami Bank has had foreign investment from the beginning. Many of these foreign investors have left ownership after the changeover. Islamic Development Bank (IDB) has sold 86.9 million shares. Excel Dyeing and Printing purchased lion’s share of these shares sold by IDB.

Kuwait’s state-run bank Kuwait Finance House also sold 2.5 billion shares. The organisation owned five per cent shares of Islami Bank. In 2015, a client of UK’s JP Morgan bought 4.16 per cent of Islami Bank’s share but left later.

In the beginning, Islami Bank had 70 per cent of its share among foreign investors and now the amount is only 50 per cent.