Islami Bank gears up for legal battle against S Alam, other institutional shareholders

Highlights

• The bank moves against shareholders linked to financial, reputational damage
• A central legal team was formed to pursue compensation lawsuits
• 82% of the bank's shares held by S Alam and affiliates were frozen by the regulator
• The bank seeks foreign investors to sell frozen shares and settle dues

Islami Bank Bangladesh PLC has formed a 14-member central legal team to address alleged financial irregularities involving major institutional shareholders, including S Alam Group and its affiliates.

Approved at a recent Audit Committee meeting of the bank, the team will provide legal support, prepare complaints, review legal notices, and guide the bank in filing lawsuits against institutional shareholders responsible for financial and reputational damage.

S Alam group and its affiliates own nearly 82% of the bank's total shares, which were frozen by the securities regulator for alleged irregularities in August last year, soon after the fall of the Awami League government, with which S Alam had close ties.

Islami Bank also plans to approach international investors such as the Islamic Development Bank (IDB), International Finance Corporation (IFC), World Bank, and Al-Rajhi Group to explore potential sales of these frozen shares, subject to regulatory approval.

Audit committee forms task force to assess damages 

In a parallel development under Miscellaneous Agenda-I, Islami Bank's Audit Committee — working alongside senior management — has formed a five-member task force to assess damages caused by the alleged actions of S Alam Group and related entities between January 2017 and July 2024.

The task force includes senior officials such as the bank's Deputy Managing Director Mahmudur Rahman and executives from various financial and investment divisions.

Their mandate is to examine asset quality, review findings from an ongoing forensic audit covering 46 investment clients — including Nabil Group — and quantify both tangible and reputational losses.

The terms of reference also authorise the task force to collaborate with the newly formed legal pool to prepare compensation suits, seeking redress for both physical damages and broader impacts, including loss of goodwill and reputational harm at both national and international levels.

This initiative marks a significant step by the Islami Bank to restore transparency and accountability in its operations and protect its interests and its stakeholders.

Islami Bank was once considered a flagship Islamic banking institution in South Asia. When IBBL was established in 1983, foreign investors held around 70% of the bank's equity.

These included major Middle Eastern institutions such as the Islamic Development Bank (IDB), Al-Rajhi Company for Industry and Trade, Kuwait Finance House, Bahrain Islamic Bank, and Dubai Islamic Bank. Together, they played a crucial role in shaping the bank's initial growth, strategic direction, and credibility in both local and international markets.

The decline began around 2013, but the most significant turning point came in 2017 when S Alam Group — a Chattogram-based conglomerate — took effective control of the bank. By that year, foreign shareholding had dropped from 70% to approximately 32%.

Bahrain Islamic Bank divested its shares in 2014. Dubai Islamic Bank exited in 2015. Kuwait Finance House followed in 2017. IDB, the most influential stakeholder, finally exited by 2023.

Four days after a request from Bangladesh Bank on 20 August last year, the Bangladesh Securities and Exchange Commission (BSEC) froze 131.89 crore shares held by S. Alam Group and its affiliates, representing 81.92% of IBBL's total shares, over alleged financial irregularities and concentration of ownership in violation of banking regulations.

A senior Islami Bank official told TBS that at the bank's 561st Audit Committee meeting, it was decided that the frozen shares of S Alam Group would be sold to adjust the bank's dues. New investors would be sought for these shares.

"To that end, Islami Bank will send proposals to multinational investment firms abroad. Very soon, the chairman and several directors of Islami Bank plan to visit the US, with the sole objective of attracting new foreign investment," he said.

S Alam Group and its affiliates allegedly secured Tk1.05 lakh crore from Islami Bank through both direct and indirect means and laundered the money abroad. Of this, Tk85,445 crore was taken directly, while Tk20,038 crore was taken indirectly.