City Bank to inject Tk100cr into struggling First Security Islami Bank

The City Bank will provide Tk100 crore in liquidity support to First Security Islami Bank (FSIB), which is currently facing a liquidity crisis.

The FSIB applied to the Bangladesh Bank for a guarantee of liquidity support today. In the application, it mentions that the liquidity support would be provided by the City Bank.

Mohammad Shahriar Siddiqui, assistant spokesperson of the Bangladesh Bank and director of the Banking Regulation and Policy Department, while talking to TBS, confirmed the receipt of the application.

Asked whether the central bank would approve the application, Husne Ara Shikha, spokesperson and executive director of the Bangladesh Bank, told TBS that since City Bank has agreed to provide the liquidity support, the central bank takes it positively.

She added that the central bank will review the application, and if deemed appropriate, it will promptly issue the guarantee.

"If the Bangladesh Bank grants approval for the liquidity support tomorrow [Monday], First Security Islami Bank will start receiving the support from that very day," a senior official of the central bank said.

He also mentioned that City Bank's liquidity situation is strong, and due to its sufficient liquidity, it has agreed to provide the support.

Last week, the managing directors of 10 banks agreed to provide support to weaker banks. The City Bank's move comes after that.

Many customers have complained that FSIB has been unable to meet their withdrawal demands due to insufficient liquidity.

Abdul Mannan, chairman of FSIB, yesterday told TBS that he is hopeful about receiving approval from the central bank. "If we get the approval, we will receive the funds from City Bank by tomorrow," he said.

Ahsan H Mansur, governor of the Bangladesh Bank, suggested the arrangement as a solution for a dozen commercial banks that have been struggling with liquidity issues for a long time. His proposal aimed to resolve the crisis without resorting to printing money.

The central bank has paved the way for coordination between strong and weak banks willing to participate in the process, where strong banks act as guarantors or sureties for weak banks seeking liquidity support.

Prior to the latest development, seven struggling banks had applied to the Bangladesh Bank to act as guarantors for liquidity support. These seven banks collectively requested more than Tk25,000 crore in cash assistance.

Among the seven banks that applied, FSIB requested the highest assistance of Tk7,900 crore. Additionally, Islami Bank Bangladesh and National Bank sought Tk5,000 crore each, EXIM Bank requested Tk4,000 crore, Global Islami Bank sought Tk3,500 crore, Social Islami Bank asked for Tk2,000 crore, and Union Bank requested Tk1,500 crore in liquidity support.

However, so far, the central bank has signed agreements to act as a guarantor for five banks. The exact amount of assistance they will receive has not yet been determined. It will be decided by the central bank, which is currently in the process of evaluation, according to officials.

The banks that have signed agreements will now raise funds from the interbank market and submit requests for guarantees to the Bangladesh Bank with board approval. After that, the central bank will consider how much money each bank can draw under the provided guarantee and grant the necessary permissions.

After the downfall of the government in the student-led mass upsurge on 5 August, the boards of the struggling banks were dissolved and restructured. Most of these banks were under the control of the controversial S Alam Group. In total, the central bank has restructured the boards of 11 banks.

Allegations have been raised that various individuals and entities, including S Alam Group, have embezzled large sums of money through loans from these banks, both in their own names and under the names of shell companies. The central bank and various investigative agencies are currently looking into these claims.

The banks faced severe liquidity crises due to the "illegitimate" withdrawal of funds under the guise of loans, a situation that banking sector experts have been discussing for a long time.