Islami Bank to sell S Alam's stake as part of recovery strategy

Islami Bank Bangladesh, the country's largest private commercial bank, plans to sell shares of the S Alam Group, which were seized by the Bangladesh Bank following the fall of Sheikh Hasina's government.

S Alam Group holds more than 35% of shares, valued at Tk1,600 crore, according to the bank's new Chairman, Obayed Ullah Al Masud.

In addition to S Alam's share sales, the bank intends to raise Tk10,000 crore by issuing new shares, Obayed added.

As part of its recovery strategy, the bank will also seek reinvestment from foreign investors, including its former foreign shareholders.

The International Finance Corporation (IFC) and other past foreign investors, including Saudi Arabia-based Al-Rajhi Co., will be invited to reinvest in Islami Bank by January, Obayed said at a press conference held on the central bank premises yesterday in the presence of Governor Ahsan H Mansur.

He said Islami Bank faces a Tk20,000 crore gap between its investments and deposits which will be addressed by selling S Alam's shares and issuing new shares.

Obayed Ullah said the new board of the bank has already engaged with the IFC and a Saudi firm and they plan to meet with them soon. 

Addressing the press conference, Bangladesh Bank Governor Ahsan H Mansur said re-engaging previous foreign investors would enhance the bank's credibility. 

S Alam Group alone obtained 80% of Islami Bank's total loans, Mansur said, noting that recovering from the resulting losses will not be an overnight process.

A review by the newly formed board of the bank found that the S Alam Group had taken out loans amounting to at least Tk80,000 crore, according to sources within the bank.

Governor Mansur said Islami Bank is comparable to other struggling banks in terms of asset size. Recovering this bank would solve major issues within the entire banking sector.

He said the Bangladesh Bank is taking action against individuals, not companies like S Alam Group and Beximco, as these companies are considered national assets.

"Legal action would be taken against the S Alam Group chairman and other officials for their alleged crimes in the banking sector," the governor added.

In 2017, S Alam Group, owned by Mohammed Saiful Alam, took control of Islami Bank with the alleged assistance of officials from the Directorate General of Forces Intelligence (DGFI). 

Following the takeover, many foreign investors gradually sold their shares, leading to a significant decline in foreign ownership. By October 2023, foreign holdings had dropped to 8.26%, down from 70% prior to the takeover.

Most foreign shareholders exited the bank in 2023.

Multilateral development finance institution Islamic Development Bank (IDB), Al-Rajhi Co., Yousuf Abdullah Al-Rajhi, Saudi Arabian citizen Abdullah Abdul Aziz Al-Rajhi, and Saudi-based company Arabsas Travel and Tourist Agency sold their entire stake last year and exited the board.

The health of the bank started to deteriorate since the bank was taken over by the Chattogram-based business group which had a close tie with Sheikh Hasina's government. Ahsanul Alam, son of Saiful Alam Masud, was appointed as the chairman of the bank last year.

Islami Bank, which was one of the highest profit-making banking companies, incurred a loss of Tk89 crore in the third quarter of 2024, a first in the past couple of decades. The loss was due to maintaining the high provision required against bad loans created by the S Alam group.

The default loan of the bank more than doubled to Tk17,751 crore in September this year in just three months from June after the bank was freed from S Alam's grip, according to Bangladesh Bank data.

Developments after board reshuffle

The Bangladesh Bank formed a new board of directors for crisis-hit Islami Bank Bangladesh in August, appointing five independent directors.

After the reconstitution of the board, the bank saw an increase in deposits of Tk4,972 crore. The bank also made foreign payments of $1.7 billion (equivalent to Tk20,418 crore), said the bank's new chairman in the press conference.

The bank also collected remittances worth Tk10,103 crore in the last three months.

The new board also allocated three employees in its 2,783 agent outlets across the country to strengthen deposit collection, said Obayed, adding that it signed an agreement with MFS (Mobile Financial Service) provider bKash to collect deposits using their network.