In the face of an acute cash crunch, all branch managers of Islami Bank Bangladesh PLC (IBBPLC) have been stripped of their authority to sanction loans or raise loan limits. The same applies to the divisional and zonal heads.
However, they are still allowed to grant agricultural loans as before. The bank disburses only three percent of its total loans to the agricultural sector.
Previously, branch managers, divisional, and zonal heads were authorised to sanction loans up to Tk 7 million, mainly to rural entrepreneurs and businesses. Now, the bank will disburse loans subject to approval from the headquarters, where the managing director (MD) is allowed to approve loans up to Tk 5 million.
The new loan protocol is expected to shrink the loan facilities for the rural entrepreneurs.
The decision came at the 324th meeting of the bank’s board of directors on June 19. At the meeting, the directors welcomed Ahsanul Alam, son of S Alam Group chairman Saiful Alam, as he joined the bank as chairman and director.
IBBL MD Monirul Moula and its human resource department chief Mustafizur Rahman issued letters to all branches on July 20, providing instructions regarding the new loan approval protocol.
However, Mainul Islam, an Ekushey Padak-winning economist, criticised the decision and said the board of directors took the decision to consolidate S Alam Group’s unilateral control over the bank. There are discussions about money laundering from some seven banks, and the High Court ordered an investigation into it.
The new decision would curtail loan facilities for village-level entrepreneurs, which would ultimately impact the entire economy, he said, adding, “They made this plot to take out loans, with a name or anonymously.”
Earlier, a senior principal officer with the charge of branch manager was allowed to approve loans up to 1 million, while higher-ranking managers could approve up to Tk 2 million. The ceiling for loan approval by zonal managers was up to Tk 7 million.
Currently, the Islami Bank operates a total of 394 branches across the country, with each branch operating multiple sub-branches.
The letter regarding the loan sanction protocol noted that the MD would approve loans up to 5 million or raise loan limits. Loans over the threshold would require approval from the executive committee. However, branch managers are still permitted to approve agricultural loans up to 5 million.
Besides, the MD will approve loans up to Tk 5 million under the Bangladesh Bank’s refinancing scheme to ensure food security. Approval from the executive committee or board of directors would be required if the loan amount exceeds the ceiling.
Simply put, branches are not authorised to lend any loans except for agricultural ones. Moreover, several bank officials said the agriculture loan service is now suspended at the branch level.
Speaking anonymously, a branch manager from Khulna said around 50 percent of lower and middle-class traders in the locality used to take loans up to Tk 500,000 for purchasing raw materials. These loans were approved at the branch level.
“Now, we cannot sanction loans of a single penny. We get no response if the loan files are forwarded to the headquarters,” he added.
An official from a Chattogram branch said they used to disburse loans to good clients within a short period. “Now we cannot disburse any loans. Even many depositors are now seeking updates on their deposits.”
Background
The letter noted that the board of directors took a new decision on loan disbursement and letters of credit (LC) due to disruptions in the global supply chain and the rise in energy and consumer product prices.
Defending the decision, Islami Bank MD Monirul Moula said it stems from the bank's overall financial health. The previous protocol for loan approval will be reinstated in the future if necessary.
He also noted that many local and international banks do not have the authority to sanction loans at the branch and zone levels.
It was learned that a significant sum of money was disbursed in loans from different branches after the S Alam Group acquired the bank in 2017. The loans mostly ranged up to Tk 9 billion, which is the authorised threshold for loan sanction by the executive committee. A loan of more than Tk 9 billion requires endorsement from the board of directors.
During the loan disbursement, former army officer Abdul Matin and Chittagong University professor Selim Uddin served as presidents of the bank’s executive committee in turn. The bank got Ahsanul Alam as its new chairman in June, while Selim Uddin was made chairman of Union Bank, another entity of the Chattogram-based conglomerate.
The bank is now grappling with a liquidity crunch as its disbursed loans surpassed the deposits. Against this backdrop, the private sector entity is now in a desperate attempt to remain afloat by borrowing from different banks, including the Bangladesh Bank. It is counting penalty interest daily, having failed to deposit the required amount of cash with the central bank.
A senior official from the Bangladesh Bank said the entire banking sector would be affected if the Islami Bank faces any unwarranted fate. No action is being taken in the absence of a green signal from the government. Even the measures that were adopted for the National Bank earlier are not being taken in this case.
The country receives around 30 percent of its import, export, and remittance income through the Shariah-based bank. It has a deposit base of nearly Tk 1500 billion from 20 million clients, mostly from district and upazila levels.
Foreigners Offload Shares
Since its inception in 1983, individuals and entities affiliated with Jamaat-e-Islami have adeptly managed the largest private sector bank in the country. In 2011, the regulating authorities made it mandatory to have at least 2 per cent of shares to be a director, setting a barrier to their control.
The S Alam Group gained control of the board of directors in 2017, after securing the majority of shares through its sister concerns. Later, the then chairman, vice-chairman, and MD were forced to resign from their positions. This led to a large-scale divestment by local and foreign shareholders.
The Ibn Sina Trust offloaded all of its shares in April 2017, while the Islamic Development Bank (IDB) sold its shares in May, Kuwait Finance House in September of the same year.
This year, the Investment Corporation of Bangladesh (ICB) left its shares as well as directorship in June, and the Arab Sas Travel and Tours Agency in July.
Now, the IBBL board is predominantly represented by the S Alam Group, with the exception of two foreign directors.
According to a source, the directors are paid Tk 50,000 each for attending the board meetings and serving the interests of the owners. If someone dissents, they are simply removed from the board.
Acute cash crunch
According to the cash reserve ratio (CRR) policy, banks must deposit 3.5 per cent of customer deposits daily and 4 per cent at the end of every two weeks with the central bank. A bank failing to deposit the required amount must pay a daily penalty interest of 9 per cent on the due amount.
In addition, banks must deposit 13 per cent of customer deposits – which is 5.5 per cent for Shariah-based banks – in the form of cash, bonds, bills, or foreign currency, under the statutory liquidity ratio (SLR). Here, the penalty interest rate is 8.5 per cent.
The Bangladesh Bank Act and Bank Company Act do not contain any provisions to waive the penalty interests, leaving the central bank with limited options but to grant extra time to the concerned banks.
The Islami Bank faced a penalty interest of Tk 29 million on 30 June, against its CRR deficit of Tk 39 billion.
The crisis has become so acute that it is even failing to settle the penalty interests fully. Against this backdrop, the Bangladesh Bank has stipulated until September to address the liquidity challenges and pay the fines.
Apart from the Islami Bank, Social Islami Bank (SIBL), First Security Islami Bank (FSIBL), Global Islami Bank (GIBL), Union, and ICB Islamic Bank are also facing a similar liquidity crisis. Except for the ICB, all are owned by the Chattogram-based conglomerate.
Still, the central bank did not take any action against the board of directors and officials of the concerned banks. The regulator deemed its job done by simply appointing observers to two banks -- Islami Bank and First Security Islami Bank.
Moreover, the officials involved in different irregularities in the six banks are being awarded promotions.
Ahsan H Mansur, executive director of the Policy Research Institute (PRI), said the bank was handed over to the group as part of the process to finish it. The economy will suffer significant damage if it faces consequences like that of Farmers Bank. It is equivalent to 50 entities like Farmers Bank. Depositors should think about where they have kept their money. The central bank turned a blind eye to the bank and is not taking any action.