Islami Bank seeks Tk8,000cr liquidity support in advance

The Islami Bank Bangladesh Limited has requested a liquidity facility of Tk8,000 crore from the central bank in advance to address growing liquidity pressures. 

The bank's Managing Director Mohammed Monirul Moula sent a letter to the governor of the central bank seeking the fund against government dues to the bank.  

In the letter, Moula requested Tk7,074 crore as a fertilizer subsidy, Tk400 crore as an electricity and fuel subsidy, Tk144 crore as Covid stimulus, and Tk337 crore as remittance incentives. 

However, the central bank says it can only provide Tk482 crore, as there is no existing policy framework to provide the remaining Tk7,500 crore requested.

The Bangladesh Bank recently introduced Mudarabah Liquidity Support (MLS), a tool to provide liquidity support to cash-strapped shariah-based banks, in order to cushion their ailing financial health.

Under the new window, the banks will be able to get liquidity support from the central bank by giving collateral of funds, which they initially provide to receivers of remitters as incentives against remittances.

No bank has sought liquidity support under the new window until now, said Bangladesh Bank Executive Director and also a spokesperson Mesbahul Haque. 

He said the central bank currently does not have any tools to provide liquidity support to any bank in fertiliser and fuel subsidies. "However, the central bank will assess the request and see if there is any scope for considering the request."  

Usually, it takes about three months for banks to get the money they spent on government subsidies. During this time, the subsidy decision is verified. 

"If the government acknowledges the subsidy meantime, then the calculation is different. If not, those will have to be assessed,"  Mesbahul Haque told The Business Standard. 

Islami Bank opened 45 import LCs worth $71.21 crore in 2022, according to the letter sent by the bank. As against which it has sent bill information of Tk70.62 crore from foreign banks. Of this, Islami Bank has paid $16.82 crore (Tk1800 crore) to exporters from its own pocket. The bank has submitted bills to the Ministry of Agriculture for a subsidy of Tk7,074 crore against the imports of $71.21 crore.

Besides, Islami Bank has financed a total of 1173 MW through single and syndicated finance to 11 power generation companies. The companies owe Tk400 crore for power generation, as Islami Bank seeks the money to clear the bills.

The bank says the central bank owes it Tk144 crore for several Covid stimulus packages. Besides, the government owes Islami Bank Tk337 crore for 2.5% cash incentives for remittances. 

In November last year, Islami Bank faced huge deposit withdrawal pressure following media reports on lending anomalies. This mass withdrawal led to a liquidity crunch in major Shariah banks.

The Business Standard on Monday approached Islami Bank Managing Director Mohammed Monirul Moula several times for comment, but to no avail.