Explainer: How S Alam syphoned money from bank after bank

The interim government has decided to sell all the shares S Alam held in the Islami Bank.

The move is expected to fetch Tk10,000 crore for the bank.

S Alam Group has shares worth Tk1,600 crore in face value, which have a market price of nearly Tk10,000 crore considering the current price of each share price at Tk60 at the Dhaka Stock Exchange.

The depth of the group's chokehold on the banking sector surfaced soon after the fall of the AL government, soon after former prime minister Sheikh Hasina fled Bangladesh.

Although S Alam's notoriety was whispered throughout the AL reign, with even media reports on the issue, the group remained one of the untouchables.

Once their web of corruption was disentangled, the breadth of what they had done still shocked many.

During Sheikh Hasina's regime, S Alam group's owner Saiful Alam gained control of seven banks through special favours from the government, Bangladesh Bank Governor Ahsan H Mansur said at the end of August.

S Alam took out at least Tk2 lakh crore anonymously from various banks, including those under its control, and laundered most of it abroad.

He singled out S Alam as the first person who systematically looted banks.

"I'm not aware of anyone else in the world who has executed a bank robbery in such a well-planned manner," he said.

Tk2 lakh crore is not an easy number to comprehend.

Consider laying Tk1,000 notes (16cm) side by side. To come close to the Tk2 lakh crore, the notes would line up to create almost 16 Great Walls of China, each at 21,196 kilometres.

It would be so large it could be easily spotted from space with some magnification.

To put it another way, if you earned Tk1 lakh per month, you'd have to work for around 16,667 years just to reach the total figure.

With the figures released, the government began its crackdown against the group.

In total, S Alam had its fingers deep in eight banks – Islami Bank Bangladesh, First Security Islami, Social Islami, Global Islami, Union Bank, National Bank, Al-Arafah Islami Bank and Bangladesh Commerce Bank Ltd.

BB won't shut down companies like S Alam Group, Beximco: Mansur

One by one, S Alam was removed from the boards of these banks.

Aviva Finance Limited, a non-bank financial institution (NBFI), was also freed from the control of the Chattogram-based S Alam Group, which was implicated in laundering after obtaining massive funds from various banks.

Controlling the stakes

Flouting all rules, the S Alam Group used the central bank's special permission to own stakes in different banks and financial institutions.

It took a 30% stake in Islami Bank, although the law capped shareholding by family to 10%.

With the new stake, it took out Tk25,000 crore loans from the bank, with much less investment. Some believe this figure can rise to three times what has been found so far.

S Alam and his relatives also got 19% stake in SIBL, 24% in First Security, 32.6% in Global Islami, 5% in Al Arafah, 32.7% in Union Bank, 5% in Northern Insurance and 72% in Aviva Finance.

The Alams became the only family in Bangladesh with all its members and some relatives sitting on the boards of several banks simultaneously.

A report from August showed it had taken out some Tk 5,000 crore loans from SIBL, while the amount from Islami Bank alone could reach above Tk75,000cr.

A Bangladesh Bank report publicised on October said under Sheikh Hasina's regime, Shariah-compliant Union Bank, controlled by the controversial Chattogram-based S Alam Group, extended Tk17,229 crore in loans to 247 entities affiliated with the group – making up 64% of the bank's total lending, mostly unsecured.

Banking guidelines allow customers to borrow up to 80% against their Mudaraba Term Deposit Receipts (MTDR) in a Shariah-compliant bank. However, at Union Bank, 19 customers leveraged Tk79 crore in MTDR to secure loans amounting to Tk853 crore – far exceeding standard limits. This was facilitated by officials spanning from "managing directors to branch managers".

Blank cheques and clean chits

From the figures, it is obvious that S Alam worked in cahoots with government bodies and its associated watchdogs.

The Bangladesh Securities and Exchange Commission (BSEC), on 20 August, ordered the country's stock exchanges and the Central Depository Bangladesh Limited to freeze the shares of banks held by S Alam and his associates.

Speaking about the issue, Abdul Awal Mintoo, former president of the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI), yesterday voiced strong criticism of the Bangladesh bank, claiming it has become the nation's most dictatorial institution.

The central bank in FY23 and FY24 supplied liquidity to problem banks, mostly controlled by S Alam Group, by printing new money without generating real assets.

For example, Social Islami Bank, one of the S Alam Group-controlled banks, experienced a negative balance in its current account maintained with the Bangladesh Bank for the first time in November 2022 due to aggressive lending.

The negative current account balance means that banks are not able to clear depositors' cheques, which reflects an extreme liquidity crisis for a lender.

However, the Bangladesh Bank allowed the bank to continue clearing cheques by providing liquidity support through printing money instead of taking measures to stop further erosion.

Despite having a negative balance, the bank continued lending to S Alam Group with printing money support from the central bank, which ultimately dragged down the lender to the verge of collapse, making it unable to run regular operations.

"If the Bangladesh Bank had stopped lending at the beginning as per rule when the current account became negative, the bank would not have been in the current situation," said a senior executive of Social Islami Bank.

The bank official said at least Tk1,000 crore would have been in the bank's current account balance if the central bank had stopped business at that time. "Rather, it was allowed to keep lending, which widened the negative equity, causing a severe liquidity crisis."

But the central bank isn't where it all ended.

In an interview with British newspaper the Financial Times in October, BB governor Mansur said the Directorate General of Forces Intelligence (DGFI), Bangladesh's powerful military intelligence agency, played a role in orchestrating forced takeovers of some banks.

The forced takeovers resulted in the subsequent robbing of the banks.

How S Alam responded

In a statement issued in October by law firm Quinn Emanuel Urquhart & Sullivan on behalf of Saiful Alam, the S Alam Group said there was "no truth" to Mansur's allegations.

"The coordinated campaign of the interim government against the S Alam Group and several other leading businesses in Bangladesh has failed to respect even basic principles of due process," it said.

"It has already undermined investor confidence and contributed to the deterioration of law and order," the statement said.

"Given the Group's record and contributions, we find the accusations by the governor surprising and unjustified," the group said in its statement.