Islami Bank faces corporate client confidence concerns amid board, MD vacuum
This has exposed some of the bank’s long-standing corporate customers to business risks.
Highlights:
- One-member board and no regular MD are causing operational difficulties
- Loan approvals, LCs and corporate financing are facing delays
- Deposits fell to Tk1.61 lakh crore from Tk1.85 lakh crore
- NPLs reached Tk98,914 crore, or 52% of total loans
- The bank posted an operating loss of Tk1,285 crore in H1
- Senior executives' contract renewals are also stuck
Islami Bank Bangladesh is facing growing operational difficulties as the country's largest bank by deposits and loans continues to operate with a one-member board and without a regular managing director, raising concerns among corporate customers.
Speaking to The Business Standard, several officials in the bank's corporate division said loan proposals are moving through the regular process but getting stuck at the final approval stage, where decisions often require higher-level authorisation.
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The delays are affecting loan renewals, increases in credit limits, new loan facilities and large import and export financing arrangements, they said.
A deputy managing director of the bank, on condition of anonymity, said even long-standing customers are becoming concerned about continuing their business with the bank because of the absence of a full board.
He said the lack of a full board is also making it difficult for the bank to focus on new lending to sound corporate clients, while the acting managing director had to remain highly cautious about approving new investments.
Hundreds of garment factories and other industrial businesses still use Islami Bank to pay salaries and allowances to their employees. These businesses also require letters of credit and working capital to conduct their regular import and export operations.
However, some companies are not receiving financing according to their requirements, while others are facing delays in opening letters of credit, according to bank officials. This has exposed some of the bank's long-standing corporate customers to business risks.
Rival groups clash over dismissed employees, board
The operational difficulties come amid renewed protests by employees dismissed from Islami Bank after being recruited in Chattogram's Patiya during the period when the bank was under the control of S Alam Group.
A group calling itself the Sacheton Grahok Forum (Conscience Customer Forum) has also held counter-programmes, accusing the dismissed employees of being part of the "S Alam gang" and of conspiring against Islami Bank.
Most members of the organisation are customers of the bank as well as supporters of a political party.
The rival programmes escalated into physical clashes and stone-throwing last week. Over 50 people were injured in clashes, according to leaders of both sides.
However, a senior Bangladesh Bank official said street protests would not resolve the issue.
The official said the central bank is examining whether there had been any irregularities in the recruitment and dismissal of the employees. The matter is also before the courts, he said.
He added that while Bangladesh Bank is responsible for handing over the bank to a new board, the central bank is still searching for suitable candidates.
"Islami Bank needs stability in the interest of the country's economy," he said, adding that a solution would be easier through coordination between the country's two major political parties.
MD post vacant for over three months
The bank has also been operating without a regular managing director for about three and a half months.
Omar Faruk Khan was the bank's managing director before the previous board sent him on leave on 13 April. He was unable to return to the bank after his leave ended and subsequently resigned. No regular managing director has been appointed since then, and the bank's day-to-day operations are being run by an acting managing director.
Under the Bank Company Act and relevant Bangladesh Bank regulations, a managing director's post cannot ordinarily remain vacant for an extended period.
When the post becomes vacant, an acting executive may assume responsibility for the managing director's functions. However, the vacancy cannot ordinarily continue for more than three months, after which the Bangladesh Bank may appoint an administrator.
Shahriar Siddiqui, director and assistant spokesperson of the Bangladesh Bank, said there is no provision for keeping the managing director's post vacant for more than three months.
"If the post becomes vacant, there is a provision for appointing an administrator," he said. "However, the Bangladesh Bank can extend the period for a reasonable cause. Since Bangladesh Bank officials are currently involved with the bank, appointing an administrator would not be appropriate."
Terms of senior executives also stuck
The absence of a full board has also complicated the extension of contracts for the acting managing director and seven other senior executives.
Under government service rules and Bangladesh Bank regulations, the regular retirement age is 60, while employees can remain in contractual positions up to the age of 65.
However, after S Alam Group took control of Islami Bank, rules were introduced allowing senior officials to work on a contractual basis. As a result, the appointment and reappointment of senior executives became dependent on decisions by the board.
That arrangement remains in place, and the contracts of senior officials are expiring one after another. Although officials whose contracts have expired have applied for reappointment, no decisions have been taken on their cases.
Several more senior officials are expected to reach the end of their contractual terms by December.
Three senior officials have already completed their contractual terms. The contract of additional managing director Mohammad Jamal Uddin Majumder expired on 11 September, while those of deputy managing director Mahbub Alam and senior executive vice-president Aminur Rahman expired on 9 September.
No decision has yet been taken on their reappointment.
According to bank sources, Islami Bank has already written to the Bangladesh Bank seeking approval for the reappointment of eight officials. Although board approval is sufficient for reappointing officials at these levels, the bank has referred the matter to the central bank because of the current situation.
Mohammad Zahir Hossain, executive director of the Bangladesh Bank and the official currently performing the board's functions, said the bank does not have a full board and that he is only part of the board arrangement.
"Full board approval is required for decisions of this nature," he said.
One-member board in place for three months
On 14 June, the Bangladesh Bank dissolved Islami Bank's entire board and assigned responsibility for the bank's board to its executive director Mohammad Zahir Hossain.
Since then, he has been responsible for decisions concerning the bank for over three months. However, several bank sources said he has been unable to take decisions on a number of important matters.
Earlier, on 24 May, M Zubaidur Rahman resigned as Islami Bank Chairman on Bangladesh Bank's advice. That night, former Bangladesh Bank deputy governor Khurshid Alam was appointed as an independent director and chairman.
When Zahir Hossain assumed responsibility for the board, he told journalists that he would serve as a one-member board for a limited period to ensure that the bank's operations are not disrupted.
He also said the authorities are screening candidates for a full board comprising qualified and completely neutral individuals who could manage the bank efficiently.
Zahir had said a five-member full board was being formed and that the candidates needed to be carefully vetted to ensure that the new board members were independent and capable of running the bank.
Deposits fall as defaulted loans surge
Bank officials said Islami Bank had undertaken several initiatives to recover after 5 August 2024 and that senior executives had begun implementing plans that helped the bank recover within a relatively short period.
However, renewed instability surrounding the formation of a new board led to heavy withdrawals of deposits, they said. The bank subsequently sought liquidity support from the central bank to maintain its operations.
Although deposit withdrawals have now stopped, the bank has made little progress in expanding its business and trade activities, according to officials. They said the bank is mainly collecting deposits, which they describe as insufficient to sustain a banking business.
According to bank data, the renewed instability has had its biggest impact on deposits, which have fallen from Tk1.85 lakh crore to Tk1.61 lakh crore.
The bank's income and expenditure position has also deteriorated. It recorded an operating loss of around Tk1,285 crore in the first six months of this year.
Its biggest long-term challenge remains non-performing loans (NPLs), commonly known as defaulted loans. NPLs rose to Tk98,914 crore at the end of June, equivalent to 52% of the bank's total loans and the highest amount of NPLs among banks in Bangladesh.
Bank officials said some senior executives who had played an important role in the bank's recovery are now reaching the end of their contractual terms without receiving extensions, creating a fresh risk for the bank.
Economists said prolonged vacancies in senior leadership positions could weaken customer confidence in a bank.
Corporate customers, in particular, expect quick decisions and efficient services, they said. Prolonged delays in decision-making could prompt some customers to shift their business to other banks, potentially affecting Islami Bank's business over the longer term.
