S Alam out, Al-Arafah Islami Bank now under KDS' control

With the backing of the government's top leadership, Bangladesh Bank has once again handed over the management of Al-Arafah Islami Bank to its former entrepreneurs. As a result, individuals previously accused of irregularities and unethical practices have also found places on the new board. Just two days after the directors were appointed, two of them had to be removed from the board.

Following the latest restructuring of the board, effective control of the bank has shifted to the Chattogram-based KDS Group. During the Awami League government's tenure, KDS Group was involved in the management of both Al-Arafah Islami Bank and National Bank. In both banks, it worked alongside the controversial S Alam Group.

Meanwhile, soon after the board was reconstituted, several of the newly appointed directors initiated efforts to bring back former officials who had previously been dismissed or accused of various irregularities. Some of these controversial officials were even seen attending the first meeting of the newly formed board. At the same time, allegations have emerged that one of the bank's deputy managing directors (DMDs) was forced to resign after the new board assumed office. These developments have once again created apprehension and uncertainty among the bank's officers and employees.

When contacted, the bank's newly elected Chairman, Badiur Rahman, told Prothom Alo, "I have returned to the bank after a long time. My primary responsibility now is to run the bank professionally so that no fresh irregularities occur. However, there is no scope to reinstate anyone who lost their job over specific allegations. If new irregularities take place, the bank will face serious risks. As chairman, my foremost responsibility is to protect the interests of depositors."

During the Awami League government's tenure, Al-Arafah Islami Bank was under the control of the S Alam Group. At the time, the bank's chairman was Abdus Samad Labu, brother of S Alam (Saiful Alam). Alongside the S Alam Group, the KDS Group was also active in the bank.

After the political changeover in August 2024, Bangladesh Bank dissolved the bank's board and formed an independent board of directors. Khaza Shahriar, former managing director of LankaBangla Finance, was appointed chairman. The other independent directors were Md Shahinul Islam, Md Abdul Wadud, M Abu Yusuf and Mohammad Ashraful Hasan. The bank continued to operate under these independent directors until the latest restructuring of the board.

During their tenure, several local and foreign firms conducted audits of the bank, which uncovered a range of irregularities.

After the BNP government assumed office in February this year, two groups became active in trying to regain control of the bank. After that, KDS Group sought the return of its ownership rights, while another faction demanded board positions in proportion to its shareholding. That group included former director and current Minister for Religious Affairs Kazi Shah Mofazzal Hossain (Kaykobad).

At the government's directives, control of the bank was returned to shareholders holding at least a 2 per cent stake. At the same time, the five independent directors were retained.

Bangladesh Bank appointed 14 directors from among the shareholders. Of them, six are members of the KDS Group or close relatives of its top leadership. They are KDS Group Chairman Khalilur Rahman; his son Selim Rahman; Khalilur Rahman's brother Ahmedul Haque; KDS Garments representative director Mahbub Ahmed; KDS Textiles representative director Farid Uddin Ahmed; and KY Steel Mills representative Mohammad Sharif Uddin Taslim. In addition, several relatives of the KDS owners were also appointed.

The bank's newly elected chairman, Badiur Rahman, is also associated with the KDS family. Other directors include Md Enayet Ullah, who contested the most recent parliamentary election from Dhaka-7 as a Jamaat candidate, along with Rafiqul Islam, Imadur Rahman, Nazmul Ahsan Khaled, Anwar Hossain, Abdus Salam and Liaquat Ali Chowdhury.

Speaking to Prothom Alo, Md Enayet Ullah said, "I have regained my position as a director after many years. No one will be allowed to commit irregularities again."

Meanwhile, controversy arose over the appointment of five directors from the KDS Group. Following instructions from Bangladesh Bank, Farid Uddin Ahmed and Mohammad Sharif Uddin Taslim did not assume their positions because, under the Bank Company Act, no more than three directors from the same family or business group may serve on a bank's board.

After the two KDS representatives are were left out, Bangladesh Bank appointed Khandaker Mezbah Uddin Ahmed as a new director.

Speaking on condition of anonymity, a Bangladesh Bank official told Prothom Alo: "Several banks have been run by independent directors for a long time—more than two years in some cases. We also wanted these banks to be returned to genuine shareholders. But the process has not started well. Under pressure from the highest levels of the government, we were compelled to hand over Al-Arafah Islami Bank to a particular group."

Al-Arafah Islami Bank's board was reconstituted on 15 July. The following day, the newly formed board held an emergency meeting. At that meeting, former chairman Badiur Rahman was elected chairman of the bank once again, while Selim Rahman of the KDS Group was elected chairman of the executive committee.

Two directors who attended the meeting told Prothom Alo that Shahed Siddiqui, a former bank official who had previously been dismissed, along with several other former officials, attended the board meeting. Although the meeting of the 19-member board was expected to have a maximum of about 25 attendees, more than 40 people were present.

According to them, some officials present openly celebrated the return of the KDS representatives, while the independent directors remained silent throughout the proceedings.

Several bank officials said that former employees who had been dismissed over the past two years for various reasons have been exerting pressure in different ways to return to the bank. They also alleged that the bank's newly appointed chairman, the chairman of the executive committee and KDS Group Chairman Khalilur Rahman questioned officials who had joined the bank during the past two years. According to the officials, Deputy Managing Director Mohammad Hossain resigned following their instructions.

Responding to the allegations, newly elected Chairman Badiur Rahman said, "I assumed the chairmanship of the bank with the consent of both sides. Many people came to meet us on the day of the board meeting, which is why the environment was not ideal. The deputy managing director resigned of his own accord. We gave no instruction."

Investigations conducted by international audit firm KPMG and the bank's own internal inquiry uncovered irregular and unauthorised purchases of luxury Mercedes-Benz vehicles worth Tk 55 million for the personal use of two former chairmen of Al-Arafah Islami Bank.

One of them was Selim Rahman, managing director of the KDS Group and now chairman of the bank's executive committee. The other was Abdus Samad Labu, brother of S Alam.

According to the investigation report, at the bank's 374th board meeting on 15 June 2022, approval was given to purchase a vehicle for then chairman Selim Rahman within a budget of Tk 10 million.

However, disregarding the board's approval, a Mercedes-Benz was purchased for Tk 22.3 million, exceeding the approved limit by Tk 12.3 million.

Similarly, in August 2023, another Mercedes-Benz of the same model was purchased for Tk 32.367 million for former chairman Abdus Samad Labu without any board approval.

To conceal the transactions and obscure the movement of funds, the two vehicles were not registered in the name of the bank. Instead, they were purchased in the names of two subsidiaries—AIBL Capital Management Limited and AIBL Capital Market Services Limited.

Payments for the vehicles were made using the bank's Suspense Account, Adjustment Account, and Compensation Recovery Account. After the purchases, neither the bank nor its subsidiary companies recorded the vehicles in their fixed asset registers, nor was any depreciation charged against them.

Following objections from Bangladesh Bank, both vehicles have since been taken into the bank's custody. In addition, show-cause notices have been issued to the executives and officials involved, and a special plan has been adopted to recover the unauthorised expenditures.

Besides, when the S Alam Group took control of National Bank at the end of the ousted Awami League government's tenure, Khalilur Rahman, chairman of the KDS Group, became chairman of the bank.

After the fall of the Awami League government, Bangladesh Bank removed him from that position. He has now been appointed as a director of Al-Arafah Islami Bank.

During his tenure at National Bank, he became an accused in multiple cases over various irregularities. In February this year, he was arrested in a case filed by the Anti-Corruption Commission (ACC) and subsequently spent time in jail.

Established in 1995, Al-Arafah Islami Bank had total deposits of Tk 543.65 billion at the end of December last year. At that time, the bank's total loans and investments stood at Tk 501.21 billion. The bank's classified (defaulted) loans accounted for 17.61 per cent of its total loan portfolio.

The bank, however, posted a net profit of Tk 850 million last year.

Because of its high level of non-performing loans, Al-Arafah Islami Bank did not declare any dividends for shareholders in 2024 or 2025. As a result, it has been placed in the Z Category on the stock market. The bank currently operates 226 branches across the country and employs 5,593 staff members.

When asked about the overall aspects. Mustafa K Mujeri, former chief economist of Bangladesh Bank, told Prothom Alo that it is natural for shareholder-directors to run banks. However, the nation has already seen what many of them did in the past. As a result, many depositors are still unable to recover their money.

Therefore, it would not be appropriate to place individuals in charge again if they could pose even the slightest risk to a bank. Directors should be appointed only after carefully reviewing their past records. If Bangladesh Bank once again allows itself to be influenced by others, it would be unfortunate for the nation, he added.