How 6 of 11 problem banks turn around

Summary:

• Six banks recovered through deposit mobilisation, restoring customer confidence in six months
• Tk30,000 crore injected by Bangladesh Bank to support restructuring and liquidity
• Five banks struggling, relying on central bank funds due to customer distrust
• Bank Resolution Act will empower mergers, acquisitions, and actions against non-viable banks
• Ex-S Alam Group banks face collapse due to concentrated deposits and corruption

Out of the 11 problem banks that were on the verge of collapse due to severe corruption, six have already turned around, riding on deposit mobilisation over the last six months and restoring customer confidence.  

This recovery came at the cost of Tk30,000 crore in new money created by the Bangladesh Bank under its liquidity support programme after the boards of the 11 banks were restructured following the appointment of Governor Ahsan H Mansur in August last year.

The six banks are Islami Bank, Social Islami Bank, Exim Bank, United Commercial Bank (UCB), IFIC Bank, and Al-Arafah Islami Bank.

Most of these banks have stopped taking liquidity support from the central bank, having overcome the liquidity crisis through timely intervention and regulatory policy support.

However, a major concern now is the rise in default loans, as previously hidden bad assets are being revealed, which will significantly impact their profitability. 

The central bank is considering provision forbearance support if needed once the full extent of default loans becomes clear.  

At a recent event, the Bangladesh Bank governor instructed banks not to obscure the true picture, even if the industry's average default loan ratio rises to 30%.  

5 Banks still struggle, may not recover

Meanwhile, the remaining five banks are still struggling to stop deposit withdrawals.  

Although the Bangladesh Bank has halted special liquidity support through new money creation to control inflation, these five banks continue to request liquidity support daily, according to a senior central bank executive.

The central bank's other liquidity support programme, which was guaranteed under a scheme, has also become ineffective, as some banks that borrowed under the programme have failed to pay back in time.  

Out of the five banks, four were controlled by the S Alam Group, which had been marred by severe corruption for a long time. The banks are Bangladesh Commerce Bank, First Security Islami Bank, Global Islami Bank, and Union Bank

In September last year, seven distressed banks were provided with Tk25,000 crore under the guarantee scheme, but Tk7,000 crore remains outstanding.

As a result, no other banks are willing to lend to distressed banks under the guarantee scheme. Moreover, the IMF has advised discontinuing the scheme, warning that it could destabilise other banks by exposing them to high-risk lending.

The Bangladesh Bank sees little hope of recovering the five struggling banks, the executive said.

The regular banking operations of these five banks have nearly come to a halt due to the suspension of lending activities. They are relying on central bank funds to manage deposit withdrawals, as they have yet to regain customer confidence.

Bank Resolution Act to take action against non-viable banks

Against this backdrop, the Bangladesh Bank is expediting the finalisation of the Bank Resolution Act, expected by July this year, to facilitate mergers and acquisitions.

The final draft of the Bank Resolution Ordinance, 2025, has already been sent to the Ministry of Finance for approval.

This ordinance will empower the Bangladesh Bank to take action against non-viable banks, including appointing a temporary administrator, raising capital through new or existing shareholders, transferring shares, assets, and liabilities to a third party, establishing a bridge bank for critical functions, and selling a failing bank.

Speaking at a recent event, the governor remarked, "Not all banks will survive."

He added, "The chances of some banks surviving are very slim. In some cases, 87% of a bank's deposits have been given to a single family." 

Of the five struggling banks, four were previously controlled by the S Alam Group, which now has little hope of survival, as over 80% of their deposits were concentrated in a single business group with close ties to ousted prime minister Sheikh Hasina.  

S Alam Group Chairman Mohammed Saiful Alam, also known as S Alam, is currently living abroad, and the troubled banks have been unable to reach him to recover the funds.

Islami Bank gets Tk17,000cr deposits

Islami Bank, the largest private commercial bank, has restored depositor confidence after ending S Alam Group's control. Following a board restructuring, the bank mobilised Tk17,000 crore in deposits over the past six months.

Last August and September, the bank faced massive deposit withdrawal pressure, forcing it to seek liquidity support from the Bangladesh Bank to meet customer demand. However, the situation has since improved, as a strong inflow of remittances has helped the bank.  

In September last year, Islami Bank received Tk5,000 crore in liquidity support under the Bangladesh Bank's guarantee scheme. However, due to a steady inflow of deposits, the bank has not required liquidity support in recent months.

Obayed Ullah Al Masud, who was appointed chairman after the bank was freed from S Alam Group's control, stated that 12.5 lakh new accounts were opened in the last six months.

He credited the government and the central bank for their role in turning the bank around and restoring public confidence. He also noted that the bank has appointed audit firms to assess its financial health and has initiated legal proceedings to take action against those responsible for past irregularities.  

IFIC mobilises Tk4,000cr

IFIC Bank, previously controlled by ousted Sheikh Hasina's private sector adviser Salman F Rahman, has mobilised Tk4,000 crore in deposits over the past four months, restoring customer confidence.

Between August and October last year, following the regime change on 5 August, the bank lost nearly Tk6,000 crore in deposits. As a result, total deposits fell to Tk45,000 crore in October, down from a peak of Tk50,742 crore in July.  

The massive deposit withdrawals triggered a liquidity crisis, leaving the bank unable to meet depositor demands. However, the newly appointed board, led by Chairman Md Mehmood Husain, prioritised rebuilding customer confidence, which led to a strong inflow of deposits.

Speaking to The Business Standard, Husain said that after taking office, he visited branches across the country and motivated employees to mobilise deposits.

He credited the bank's extensive deposit mobilisation drive and confidence-building efforts for resolving the liquidity crisis. He also noted that IFIC Bank has not required liquidity support from the Bangladesh Bank in recent months. 

"Due to its improved liquidity position, the bank resumed lending on a limited scale from February this year," he added.  

UCB sees Tk2,400cr net deposits 

United Commercial Bank, previously controlled by former land minister Saifuzzaman Chowdhury, saw a halt in deposit withdrawal pressure following the reconstruction of its board. 

The bank has been operating with its own liquidity, as deposit inflows increased in recent months. It lost over Tk2,000 crore after the July uprising, but customers are now returning their funds as deposit erosion has stopped.

The bank reported net deposits of Tk2,400 crore over the last six months, with 90% of this coming in February and March.

Speaking to TBS, Mohammad Mamdudur Rashid, managing director of UCB, said they did not seek liquidity support from the central bank after the July uprising. 

He explained that the bank experienced a withdrawal of some corporate deposits due to negative perceptions following the upheaval.

Soon after joining the bank in September, Rashid launched a four-day deposit collection campaign across all branches with a target of Tk280 crore. The bank managed to mobilise Tk409 crore during that campaign. 

Although the bank faced slight deposit decline until January, it saw a net deposit increase of Tk1,330 crore in February and Tk1,240 crore in the first two weeks of March.

The bank has already addressed its shortfalls in the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR), overcoming liquidity stress.

Rashid added that liquidity is no longer a concern for the bank, but the rising default loans remain a challenge. The bank has already identified the issues and is focusing on maintaining high-quality assets.

SIBL resumes regular banking operation

Social Islami Bank, previously controlled by S Alam Group, which saw Tk7,000 crore in deposit withdrawals after the July uprising, has turned around by overcoming its liquidity crisis, thanks to an improvement in cash flow.

The bank saw a rise in foreign business following the Bangladesh Bank's lifting of the LC (Letter of Credit) restriction. However, it is still facing tight liquidity due to substantial pending payments related to previous LCs of the S Alam Group.

The bank mobilised fresh deposits of Tk900 crore in the last six months after its board reconstruction in September last year. It has also recovered Tk4,000 crore since August last year, according to the bank's statement.

Speaking to TBS, Md Nazmus Saadat, acting managing director of the bank, said cash flow across all branches is now positive due to a halt in unusual outflows. 

He added that clients are returning to normal transactions with the bank, resulting in small deposits coming in. The export and import business has increased since the lifting of restrictions, aided by high remittance inflows. The bank has also resumed utility bill services, which has boosted cash flow due to high collections.

The bank has also regularised its foreign payments and maintained its international credit card services, he added. 

However, the bank has placed a liquidity demand for Tk1,500 crore with the central bank, anticipating deposit withdrawals ahead of Eid, which is typical during the festival. The bank has received liquidity support from the central bank.

Exim and Al-Arafah bank

Both banks are now operating regularly, with deposit withdrawal pressure having ceased. Neither bank is currently receiving liquidity support from the central bank. 

Additionally, Exim Bank has repaid a significant portion of the deposits it borrowed from the central bank, according to a senior executive of Bangladesh Bank.

Why five banks still vulnerable

Out of the five banks, four were controlled by the S Alam Group, which had been marred by severe corruption for a long time. The banks are Bangladesh Commerce Bank, First Security Islami Bank, Global Islami Bank, and Union Bank. 

Although the central bank reconstructed the boards, it could be too late for them to recover. For example, S Alam, who was the chairman of First Security Islami Bank, is the beneficiary of 80% of the bank's deposits. 

Abdul Mannan, who was appointed chairman after the board reconstruction, highlighted the scale of corruption, stating that a borrower was lent Tk300 crore despite being ineligible for even Tk100. 

Furthermore, there is no trace of such borrowers, as a single group took loans under the names of fake borrowers, he added.

However, the bank is attempting to recover by mobilising deposits. It continues to survive by taking liquidity support from the central bank, which recently approved Tk1,000 crore in liquidity assistance.

On the other hand, the central bank has stopped providing liquidity support to the other three banks, as they have little chance of recovery. These banks could not absorb the impact of massive corruption due to their small deposit base, according to a central bank executive.

National Bank, which had been under the control of the Sikder family for the last 15 years, is also struggling to regain depositor confidence. The bank had been looted for a long time, yet the central bank did not intervene. 

Finally, after the regime change, the bank was released from the family's grip, but by then, it was too late. The bank's total deposits fell to below Tk35,000 crore in February, down from over Tk40,000 crore last year, according to central bank data.

Senior managers are resigning under tremendous pressure from liquidity management. The managing director recently resigned, and several high-ranking officials are frustrated and considering leaving, according to bank insiders. 

Abdul Awal Mintoo was appointed chairman after the board's reconstruction. Despite his efforts to save the bank, the suspension of business activities by the central bank has made it difficult to increase cash flow, they said.

Al-Arafah Islami Bank's clarification

Al-Arafah Islami Bank authorities have clarified their position regarding a report titled "How 6 of 11 problem banks turn around" published in The Business Standard on 16 March this year.

In its clarification, the bank said, "Although the news was published with a positive intent, we believe it has sent a negative signal regarding Al-Arafah Islami Bank (AIB). Since its publication, we have received numerous phone calls and queries.

"We would like to clarify that, while AIB's Board of Directors was dissolved, AIB was never considered a weak bank. For the information of all, Al-Arafah Islami Bank has never availed any liquidity support from the central bank, nor has it ever refused any client's payment to date. Therefore, the statement 'most of these banks have stopped taking liquidity support from the central bank' does not apply to AIB."