How Islami Bank was quietly taken over

Once hailed as Bangladesh's best bank, Islami Bank Bangladesh Limited (IBBL) was admired for its impressive track record – low levels of nonperforming loans, due diligence, ample liquidity, and a deep customer trust. In 2015, the bank handled 27% of the country's inward remittances. Industry insiders said that IBBL financed nearly one-fifth of Bangladesh's textile and garment industries, and provided services to many of the country's largest and most reputable corporate groups.

But today, the bank tells a different story. Once flush with liquidity, IBBL now struggles to meet regulatory capital requirements and turn to the central bank for emergency funds. What led this giant to such a precarious position? Here's how it all unfolded.

The plot to take over Islami Bank Bangladesh Limited had been in the making for years. It began in 2013, with a campaign accusing the bank of financing terrorism. A narrative started to take shape, with some individuals, including the then chairman of a state-owned bank, urging the then prime minister Sheikh Hasina to think about the bank's alleged links to terrorism.

Shamsul Hoque Tuku, who served as state minister for home affairs from 2009 to 2014, added fuel to the fire. After a 2013 meeting at the finance ministry, he made a public statement on camera, claiming that 8% of Islami Bank's financing was linked to terrorism. This remark sent shockwaves throughout the banking sector.

In response, the then governor of the central bank, Atiur Rahman, convened an emergency meeting with representatives from major foreign banks, urging them to continue their business with IBBL and to disregard the state minister's comments.

Muhammad Abdul Mannan, Islami Bank's managing director and CEO at the time, felt compelled to visit Tuku at his residence. He asked the state minister, "Sir, how could you say that? The implications for our business, especially international operations, are enormous."

Tuku's response was disarmingly casual. "It just slipped out," he said.

The effort to seize control of Islami Bank gained momentum after the Awami League secured its consecutive second term in January 2014 when most oppositions boycotted the elections. This opened the door for powerful business groups and influential individuals to make their move.

"S Alam Group was not in the picture at that time," recalled a senior official of IBBL who witnessed the bank's turmoil and vulnerability between 2013 and early 2017. "The initial plan was to appoint three to four independent directors who were politically neutral and professionals," he told The Business Standard. However, this plan did not materialise in 2015.

In the first week of May 2016, the central bank approved the appointment of four independent directors for Islami Bank. The new directors were M Azizul Huq, Islami Bank's founding executive president and managing director; Professor Syed Ahsanul Alam, chairman of the Department of Marketing at Chittagong University; Helal Ahmed Chowdhury, former managing director and CEO of Pubali Bank; and Shamim Mohammad Afzal, director general of the Islamic Foundation. One of these independent directors began raising hundreds of objections to the audit report, laying the groundwork for the takeover.

Changes followed each other in quick succession. By 2016, S Alam Group began acquiring shares of Islami Bank through newly registered paper-based companies, marking the beginning of a new phase of influence within the bank.  

Seven companies linked to the S Alam Group, which bought the bank's shares, got directorship, ensuring their strong position on the board. The seven companies registered with the Joint Stock Companies only in 2016. They are: Excel Dyeing and Printing Limited, Armada Spinning Mills Limited, ABC Ventures Limited, Grand Business Limited, Platinum Endeavors, Paradise International Limited, and Blu International.

"I had never heard of these companies that bought shares worth over Tk100 crore each. No regulatory agencies even thought to investigate and find out who they are, what they do and from where they got such a huge amount of money," said another senior executive who was with the bank at the time.

Power giant United Group purchased over 3.25 crore shares, amounting to more than 2% of Islami Bank's total shares, securing a position on the board of directors. However, as S Alam Group began aggressively acquiring IBBL shares, the stock price surged. United Group capitalised on this opportunity, selling its entire stake and earning at least Tk20 crore in just a few months.  

The January 5th coup in Islami Bank

After acquiring shares from the stock market and from sponsors who were divesting their stakes in anticipation of challenging times, S Alam Group secured roughly one-fifth of Islami Bank's shares, positioning itself as a formidable player. Subsequently, Saiful Alam Masud, the group's chairman, began leveraging power and politics to take control of the bank. International media also covered this turbulent takeover.

For instance, in a 2017 report, The Economist stated: It was an odd job for a spy agency. On the morning of January 5th (2017) military intelligence operatives phoned the chairman, a vice-chairman and the managing director of Islami Bank Bangladesh, picked them up from their homes and brought them to the agency's headquarters, in Dhaka's military cantonment. Polite officers presented the bankers with letters of resignation and asked them to sign. They did so. A few hours later the bank's board, meeting under the noses of intelligence officers at a hotel owned by the army, selected their replacements.

On the same day former bureaucrat Arastoo Khan, representing Armada Spinning Mills, was appointed new chairman of Islami Bank, while Md Abdul Hamid Miah, managing director of Union Bank, was named new managing director of Islami Bank. The same day, the Islamic Development Bank, a key sponsor of Islami Bank, decided to sell around 5% of its total shares in the bank due to the sudden reshuffle. At that time, IDB held a 7.5% stake in Islami Bank.

A group of senior central bank officials played a crucial role in assisting S Alam Group with this takeover. Among them was SK Sur Chowdhury, who was then the deputy governor and a key accomplice. He also allegedly aided PK Halder, the former managing director of NRB Global Bank and Reliance Finance Limited, in syphoning off approximately Tk10,200 crore from four non-banking financial institutions. Reliance Finance is fully owned by S Alam Group, which also maintains a strong influence over NRB Global Bank.

How S Alam Group turned Islami Bank into a personal lending machine

Before taking full control of Islami Bank Bangladesh Limited on 5 January 2017, S Alam Group was already a client of the bank's Khatunganj branch in Chattogram, with a loan exposure of around Tk4,000 crore. However, after gaining control, the group's borrowing from Islami Bank skyrocketed.

According to Islami Bank's 2016 annual report, three of S Alam Group's companies – S. Alam Steels and Refined Sugar Industries, S. Alam Vegetable Oil, and S. Alam Super Edible Oil – were among the bank's top 20 borrowers. By 2020, two more entities from S Alam Group joined the top borrower list, with an additional four companies added in 2021.

As of 31 December 2023, S Alam Group's loans with Islami Bank are as follows: S. Alam Steels and Refined Sugar Industries owes over Tk4,217 crore, S. Alam Vegetable Oil Tk4,100 crore, S. Alam Super Edible Oil Tk3,938 crore, and S Alam Cold Rolled Steels nearly Tk2,000 crore, according to the bank's 2023 annual report. By the end of 2023 these four companies now hold loans totalling Tk14,165 crore – three and a half times more than they had seven years ago.

It wasn't just S Alam Group's companies that secured large loans from Islami Bank; firms owned by group chairman Saiful Alam Masud's family members also borrowed significant sums. For instance, Infinite CR Strips Industries Limited, owned by Saiful Alam Masud's son Ahsanul Alam, owes Tk1,476 crore. Unitex LP Gas, owned by the chairman's son-in-law Belal Ahmed, has Tk1,616 crore in loans. The chairman's nephew Mostan Billah and his wife Sadia Jamil each has over Tk1,000 crore in loans under their companies, Adil Corporation and Sadia Traders, respectively.

A review of Islami Bank's 2023 annual report reveals that the total loans taken by S Alam Group and their relatives amount to around Tk20,000 crore. However, industry insiders suggest that the actual figure could be much higher, as many loans were allegedly taken out under the names of paper-based companies.

Most of these loans to S Alam Group and its associates were reportedly granted during the tenure of Mahbubul Alam, who served as managing director of IBBL from February 2018 to December 2020. Following his tenure at Islami Bank, Alam became the chairman of Social Islami Bank Limited, which is also controlled by S Alam Group.