Letter to five banks warning for future: Bangladesh Bank

Logos of the five Islamic banks facing liquidity crisis

The Bangladesh Bank (BB) has admitted to sending letters to five Shariah-based banks facing liquidity crisis for closing all sorts of their transactions. The central bank has claimed this move as a part of its Motijheel branch’s regular activity.

However, the final decision regarding this is yet to be taken. The BB will come to a decision after observing the situation after the stipulated time (26 December). However, the five banks have advertised in the media denying getting any letter from the central bank.

BB spokesperson Mezbaul Haque, while addressing an emergency press briefing on Sunday, disclosed the developments.

The five banks in crisis are Islami Bank Bangladesh Ltd., First Security Bank, Social Islami Bank, Global Islami Bank and Union Bank. All these five banks are owned by the S Alam Group.

Several media outlets ran reports on Friday about the deficit in the current accounts of the five banks leading them to be on the verge of closing down their services.

The letter from the Motijheel branch of the central bank stated that the current account balances of these banks have been negative for a long time. Despite repeated reminders from the BB, these banks did not take any notable initiative.

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The BB has given these banks 20 days to adjust the negative current account balance, otherwise the banks will not be able to operate most of their services, including cheque clearing, online money transaction and ATM service. The deadline ends 26 December.

The letter from the Bangladesh Bank said, “Several transaction settlement services, including the cheque clearance services, online money transactions, ATM services, transactions with other banks under the National Payment Switch Bangladesh (NPSB) and rapid money transaction under the Real Time Gross Settlement (RTGS), are done through your current accounts in the deposit account section of the Motijheel branch. After reviewing, we have found that the balance of your current account has been negative for a long time, which doesn’t correspond to normal banking processes.”

In response to a query of a newsperson, BB spokesperson Mezbaul Haque said, “The central bank will take the decision as to what will happen after 26 December. The letter from the Motijheel branch has been misinterpreted. These sorts of letters are part of our regular activities. It’s a warning for the future.”

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He further stated that although the Motijheel Branch of the central bank had issued the letter, the final decision regarding this would be taken by the Payment System Department. Some of the Islamic banks are facing a liquidity crisis due to some infrastructural complications. The BB will work on this in the future.

Mezbaul Haque further said, “The Islamic banks have got some 22 per cent of the deposit in the banking sector of the country and they are distributing 26 per cent of total loans. Besides, these banks are bringing 40 per cent of the remittance. Although the banking sector has a loan default of more than 9 per cent, the number is below 4 per cent in case of Islamic banks. These banks are facing a liquidity crisis due to some infrastructural flaws.”

Asked why only the Islamic banks have been facing this crisis, the BB spokesperson said, “These banks do business in the same way. It’s not right that all banks will go through the same crisis. A well-known bank today may turn the opposite in future. For instance, the Eastern Bank, which was in crisis during the initial days, has gained a reputation as one of the most trusted banks today. The Bangladesh Bank had invested the capital to fix the problems within the Oriental Bank. The BB will take all the initiatives necessary for the banking sector.”

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Asked whether the central bank is printing money to provide loans to these banks, Mezbaul Haque said, “The central bank provides loans to banks in different ways. It’s a regular process. The monetary policy determines the target of increasing the money supply. We have a target to increase the money supply by Tk 340 billion this year. Already, a total of Tk 180 billion has been supplied.”

Speaking regarding the initiatives to be taken by the central bank to solve the problems lying within these banks, Mezbaul Haque said already two observers have been appointed in two of the banks.

He further said the main target of the central bank at the moment is containing inflation. After that, it will work on returning good governance to the banks in crisis.