Bank-Insurance
Cenbank goes back to tightening loan classification rules
The Bangladesh Bank has finally reinstated its loan classification rule of 2012 by cutting the overdue time of a term loan by three months in line with the international practice in response to the condition set by the International Monetary Fund (IMF) as part of a $4.7 billion loan package.
A term loan will be treated as overdue after three months of non-payment from fixed expiry date for repayment, down from existing six months, according to Bangladesh Bank circular.
Besides, the classification period after the overdue timeframe has been kept unchanged at three months, which means a loan will be treated as default in six months after the fixed expiry date for repayment from existing nine months.
This is the first phase of the new rule which will come into effect from 30 September 2024.
In the second phase, the loan will be treated as overdue from the following day of fixed expiry date of repayment from 31 March 2025, which means the account will come under classification in three months of non-payment.
However, in another circular, the central bank addressed the pressure of rising loan costs, instructing banks not to extend instalment size of borrowers.
Banks have also been asked to extend tenure of industrial term loans and house finance taken before July 2023 to adjust the increased loan costs caused by rising lending rates.
Mustafa K Mujeri, former director general of Bangladesh Institute of Development Studies, welcomed the decision, stating that it would encourage customers to pay in instalments.
“However, the instalment amount should have been left to the bank-customer relationship. It will not work if the central intervenes in all cases. Banks should be given freedom over instalment amount and extension of loan tenure,” he added.
Emranul Huq, managing director and CEO of Dhaka Bank, said banks stand to benefit from reducing loan overdue periods.
“Extending deadlines often leads customers to delay repayments unnecessarily. Shorter loan durations facilitate quicker recovery, reduce Non-Performing Loans (NPLs), and enhance the banking sector’s liquidity,” he added.
The banker supported keeping instalment amounts unchanged, explaining that when arranging instalment payments for term loans, they consider factors such as the customer’s cash flow.
“Despite interest rate increases, our priority is to ensure that instalment payments remain manageable. If handled correctly over time and clients are financially stable, it will benefit the banking sector,” he added.
The lending rate which was capped at 9% before July 2023 surged to 13.55% in April after introducing a new lending rate formula SMART (Six-months Moving Average Rate of Treasury Bills).
Moreover, the new tight loan classification rule that was eased in 2019 is feared by the Bangladesh Bank to increase non-performing loans by around Tk80,000 crore.
The total default loan in the banking industry stood at Tk1.45 lakh crore at the end of December last year which was 9% of total loans.
Changes in loan classification over the years
Earlier in 2012, the central bank adjusted loan rules to meet IMF conditions for a $1 billion ECF program. Loans used to be classified as overdue after nine months, but under the new rules, it was shortened to three months past the repayment date.
However, the Bangladesh Bank started to deviate from the international practice gradually from 2015 through offering a special loan restructuring facility for large loan borrowers with loans above Tk500 crore. Borrowers were allowed to regularise their loans under the one time restructure program with a 12 years repayment facility at only 2% down payment.
Later, in 2019, the Bangladesh Bank eased the classification rule reinstating the provision of a nine months for treating a loan account as classified from fixed expiry repayment date.
In the same year, the central came up with a relaxed loan rescheduling policy allowing defaulters to reschedule their classified loans by making a down payment of only 2% instead of the existing 10%-50%.
However, a series of rules relaxation could not reduce default loans, rather it kept rising.
Default loans in the banking industry increased by Tk52,000 crore in five years from December 2018 to December 2023 even after rescheduling loans of Tk2,12,780 crore during this period under relaxed policies.
The Bangladesh Bank in its financial stability report published in August 2023 disclosed that the banking sector’s distressed assets including default loans, rescheduled loans and written-off loans stood at Tk3.77 lakh crore at the end of 2022.
The total distressed amount was 25.5% of total loans of Tk14.77 lakh crore according to the report.
The Bangladesh Bank for the first time disclosed the distressed assets as part of the conditions agreed with the International Monetary Fund (IMF) for the $4.7 billion loan.
Borrowers will enjoy extended repayment period to adjust rising loan costs
In another circular issued yesterday, the Bangladesh Bank said borrowers’ ability to repay loans has decreased due to higher interest rates on loans taken before July 2023. As a result, loan costs have increased based on SMART.
To address this issue, banks were asked not to increase the instalment size and adjust the increased loan cost through extending repayment tenure.
The increased amount of instalment was instructed to keep separately in a blocked account which will be not charged. Later, the amount will be split in the same size of instalment that was set before 1 July 2023, according to the circular. Such extension of repayment period will not be considered as a rescheduled loan.
Banks can transfer the money from blocked accounts soon after starting recovery, said the circular. The facility will be cancelled if any loan turns to classified despite availing the extended tenure benefit.
Only loans remaining regular based on 1 April 2024 will come under the facility, according to the circular.
Parvez Tamal, Chairman of NRBC Bank, once known as a close ally of former Prime Minister Sheikh Hasina, has reportedly shifted his stance following the resignation of the Awami government on August 5. Tamal, who had been accused of exploiting political power for financial misdeeds during the Awami regime, is now aligning himself with student activists in a bid to protect his position.
Previously, Tamal had threatened NRBC Bank employees with termination if they supported or joined the quota reform movement. He also warned of administrative harassment for any Facebook posts or comments related to the movement. However, after the fall of the Awami government, Tamal has been providing financial support to the very student protesters he once opposed, in an attempt to distance himself from his controversial past.
An investigation by Orthosongbad revealed that during the anti-quota movement, Tamal worked on behalf of Sheikh Hasina, even monitoring NRBC Bank staff to ensure they did not participate in the protests. On July 17, under his directive, a warning was sent to all branch managers of the bank, cautioning them about the movement. Documents related to this have surfaced during the investigation.
A directive from NRBC Bank instructed all its officers and employees to refrain from joining any assembly related to the quota reform movement or sharing any comments, posts, or information about it on social media. The email from the bank’s HR department, titled ‘C,’ warned that any violation of this order would result in administrative action in accordance with HR policies. The directive also emphasized ensuring maximum security in and around the bank and required employees to be punctual in reporting to work.
Sources suggest that NRBC Bank Chairman Parvez Tamal, in an attempt to secure his position, has been trying to win over the coordinators of the anti-discrimination student movement. This speculation gained traction after a recent event where Tamal handed over a cheque for 5 million BDT from the bank’s Corporate Social Responsibility (CSR) fund to Hasanat Abdullah, one of the coordinators of the student protests. The donation, aimed at providing treatment and rehabilitation for injured protesters, has sparked widespread criticism on social media. Many are questioning Tamal’s sudden shift, given his previous ties to former Prime Minister Sheikh Hasina and his outspoken opposition to the student movement.
At the donation event, Parvez Tamal remarked that NRBC Bank would support the dreams of those building a “new Bangladesh.” In addition to providing medical assistance to the injured, he pledged future employment opportunities and scholarships for injured students. NRBC Bank also committed to offering jobs to able-bodied members of families affected by the protests. These promises mark a stark contrast to Tamal’s previous stance, where he had vocally supported Sheikh Hasina and opposed the student protests.
Attempts to reach Hasanat Abdullah, one of the coordinators of the anti-discrimination student movement, for a comment were unsuccessful. Despite multiple calls from Orthosongbad office to his mobile phone, there was no response. Similarly, efforts to contact another coordinator, Sarjis Alam, also failed to yield any comments.
However, former law student of Dhaka University and social media figure Syed Abdullah shared his thoughts on Facebook, stating that NRBC Bank Chairman Parvez Tamal is on a mission to secure his position by ingratiating himself with the students, thereby improving his image. Abdullah urged immediate investigations by the Anti-Corruption Commission (ACC) and journalists into the activities of Tamal and his associates.
Orthosongbad made several attempts to contact NRBC Bank Chairman Parvez Tamal for comments, but no response was received.
Sources claim that Parvez Tamal, in his efforts to support the Hasina government, has distributed various donations through the bank, both publicly and covertly. Among these are scholarships in the name of Bangabandhu, a special issue of “Planet” magazine focused on Sheikh Mujibur Rahman’s life and legacy, donations to the Bangabandhu Memorial Trust, contributions to the Bangabandhu Youth Fair, and charity books and iftar events around Bangabandhu’s birthday. Additionally, the bank had provided significant funds for Sheikh Hasina’s Ashrayan Project.
Parvez Tamal, who claims to be a Russian oligarch and served as the president of the Russia Bangabandhu Parishad, has been implicated in various financial irregularities, including loan fraud, commission schemes, recruitment corruption, stock manipulation, money laundering, and the embezzlement of funds. During the tenure of former Prime Minister Sheikh Hasina, Tamal reportedly leveraged his connections with senior leaders of the Awami League to engage in these activities.
The Anti-Corruption Commission (ACC) had previously launched an investigation into Parvez Tamal, chairman of NRBC Bank, following allegations of irregular salary increases for select officials. The investigation stemmed from a complaint by a sponsor shareholder of the bank. Tamal reportedly bypassed the banking regulations, awarding significant salary increments to 27 officials while ignoring over 3,800 employees. Additionally, Tamal and his personal secretary, Asif Iqbal, allegedly pocketed excessive fees from board meetings, violating the country’s banking laws. Furthermore, the investigation revealed that Tamal had set up an unauthorized entity, NRBC Management, without approval from Bangladesh Bank. However, the investigation was abruptly halted, allegedly due to Tamal’s political influence.
In a separate case filed on July 11, 2023, the ACC accused 14 individuals, including 11 NRBC Bank officials, of money laundering and providing unlawful loans. The lawsuit alleges that the accused embezzled approximately 78 crore BDT (including interest) by issuing loans without proper collateral. Additionally, 5.97 crore BDT worth of export proceeds were reportedly laundered without being repatriated to Bangladesh. Tamal was implicated in this fraudulent activity but reportedly used his political connections to suppress the investigation.
Further details of this ongoing investigation will be disclosed in subsequent reports by Orthosongbad.
A total of 22 companies received awards in 13 categories for best presented annual reports, integrated reporting, and corporate governance at the 24th ICAB National Awards. The event, organized by the Institute of Chartered Accountants of Bangladesh (ICAB), took place on Tuesday, September 10, at the Sonargaon Hotel in Dhaka.
Dr. Saleh Uddin Ahmed, Adviser to the Ministry of Finance, Ministry of Commerce, and Ministry of Science and Technology, attended the event as the chief guest and handed over the awards to the winners. Special guests included Dr. Md. Khairuzzaman Mozumder, Secretary of the Ministry of Finance, Md. Selim Uddin, Secretary of the Ministry of Commerce, and Md. Abdur Rahman Khan, Chairman of the National Board of Revenue.
ICAB President Mohammad Forkan Uddin delivered the welcome address, while Md. Humayun Kabir FCA, Chairman of ICAB’s Review Committee for Published Accounts and Reports (RCPAR), and Co-Chairman Md. Moniruzzaman spoke on the selection process for the best reports.
At this year’s competition, Bank Asia PLC was named the overall winner. A total of 22 companies were recognized for excellence in best presented annual reports, integrated reports, and corporate governance disclosures. Additionally, eight companies received ‘Merit’ awards.
A total of 76 companies submitted their financial reports for consideration in the competition. From the winners, three top reports in each category will be nominated for the South Asian Federation of Accountants (SAFA) competition, representing the SAARC region.
ICAB-BPA Award Winners:
Private Sector Banks:
- Gold: Bank Asia PLC and Shahjalal Islami Bank PLC (joint winners)
- Silver: The City Bank PLC
- Bronze: BRAC Bank PLC and United Commercial Bank PLC (joint winners)
Financial Services Sector:
- Gold: IPDC Finance Limited
- Bronze: IDLC Finance PLC
Manufacturing:
- Gold: British American Tobacco Bangladesh Company Limited
- Silver: Walton Hi-Tech Industries PLC
- Bronze: Reckitt Benckiser (Bangladesh) PLC
Power and Energy Sector:
- Silver: United Power Generation and Distribution Company Limited
Diversified Holdings:
- Bronze: Advanced Chemical Industries Limited (ACI Limited)
Insurance (General):
- Gold: Green Delta Insurance Company Limited
- Silver: Reliance Insurance Limited
- Bronze: City General Insurance Company Limited
Insurance (Life):
- Bronze: National Life Insurance Company Limited
NGO/NPO:
- Silver: Sajida Foundation
- Bronze: Shakti Foundation for Disadvantaged Women
Communication and Information Technology:
- Gold: Robi Axiata Limited
- Silver: Grameenphone Limited
- Bronze: Genex Infosys Limited
Service Sector:
Bronze: Unique Hotel & Resorts PLC
Corporate Governance Category:
- Gold: Bank Asia PLC
- Silver: Shahjalal Islami Bank PLC
- Bronze: BRAC Bank PLC
Integrated Reporting Category:
- Gold: Bank Asia PLC and Shahjalal Islami Bank PLC (joint winners)
- Silver: IDLC Finance PLC
- Bronze: BRAC Bank PLC
Notably, no awards were given this year in the Public Sector Banks, Infrastructure and Construction, or Agriculture sectors due to insufficient marks.
In Bangladesh, 10 fully-fledged Islamic banks operate within a banking industry dominated by conventional lenders. However, what’s particularly intriguing is the influence of Saiful Alam Masud, chairman of S Alam Group, over six of these banks.
While Islamic banks make up only 16% of the country’s total banking sector, they punch well above their weight.
According to the Bangladesh Bank’s latest financial stability report, by the end of March 2024, these banks held a 26.33% share of deposits and accounted for 28.24% of total investments in the banking industry.
In addition, these 10 Islamic banks processed over 37% of the country’s remittances during the January-March period of the current fiscal year.
Among them, Islami Bank Bangladesh, which has been fully controlled by S Alam Group for the past seven and a half years, stands out. It alone manages more than one-third of the Islamic banks’ deposits, loans, and remittances.
When combined with Al-Arafah Islami Bank, First Security Islami Bank, Social Islami Bank, Global Islami Bank, and Union Bank – the conglomerate’s stakes in Bangladesh’s Islamic banking industry exceed two-thirds.
For example, as of the end of March this year, the total deposits in the Islamic banking system amounted to Tk439,465 crore. Of this, over 70% were held by six banks either fully or partially controlled by S Alam.
Similarly, these six banks accounted for over 72% of all investments (lending) made by Islamic banks in the country.
S Alam’s journey in Shariah banking began in the early 2000s when he took full control of the First Security Islami Bank and acquired stakes in Al-Arafah Islami Bank.
His influence expanded further in 2013 when he secured licences for NRB Global Bank and Union Bank as conventional banks.
Using his considerable influence, Masud later converted these banks into Islamic ones, even when the Bangladesh Bank was strict about allowing new Shariah-based banks.
His foothold in the industry was solidified in 2017 when he took over Islami Bank Bangladesh and Social Islami Bank Limited (SIBL).
But what drives Saiful Alam Masud’s deep interest in Islamic banking? Does his passion stem from a personal adherence to Shariah principles?
The answers lie in the unique advantages Islamic banking offers in a predominantly Muslim country like Bangladesh.
Many people prefer Shariah-compliant banks as they wish to avoid interest, which is prohibited in Islam. Hence, these banks attract a large number of depositors who seek to adhere to religious principles.
Insiders in the Islamic banking industry reveal that, except for a few branches in Dhaka and Chattogram, most branches of S Alam-controlled banks are directed to focus exclusively on collecting deposits, with no loan disbursements.
This strategy aligns with a crucial advantage Islamic banks have over conventional ones: while conventional banks can lend up to 87% of their deposits, Islamic banks are permitted to lend up to 92%.
This 5% difference means that for every Tk100 in deposits, an Islamic bank can invest an additional Tk5 compared to its conventional counterparts.
IBBL’s data supports this observation. According to its annual report, the bank’s investment-deposit ratio (IDR) surged to 91.90% in 2023, nearly reaching the regulatory ceiling of 92%.
Before S Alam Group took over in 2017, the bank’s IDR was consistently below 90%—at 86.43% in 2016, 83.59% in 2015, and 79.88% in 2014.
However, the central bank’s latest financial stability report presents an even more concerning picture for Islamic banks in the country.
It revealed that the average IDR for 10 full-fledged Islamic banks (six controlled by S Alam) was 99%, indicating that Tk99 was invested for every Tk100 deposited, significantly exceeding the 92% regulatory ceiling.
“This higher lending capacity, combined with the religious appeal of Shariah-compliant banking, has fuelled S Alam’s deep involvement in the sector,” said a senior official of IBBL.
S Alam and his family’s stakes in these banks:
Saiful Alam Masud, along with his family and associated firms, holds nearly 28% of the shares in First Security Bank, where he serves as chairman and his wife, Farzana Parveen, is a director. By acquiring nearly 30% of the shares in Islami Bank Bangladesh in 2016, Masud gained full control of the bank in January 2017. He later appointed his son, Ahsanul Alam, as chairman, with his daughter, Maimuna Khanam, and son-in-law, Belal Ahmed, serving as directors.
S Alam also owns over one-fifth of the shares in Social Islami Bank, which he acquired in 2017. Also, he and his family control nearly 30% of Global Islami Bank and around 70% of Union Bank, along with 5% of the shares in Al-Arafah Islami Bank. Masud’s siblings and other relatives also hold positions on the boards of these banks.
However, according to banking laws, no family is permitted to own more than 10% of the shares in a bank. Despite this, Bangladesh Bank has failed to enforce these regulations against the S Alam Group and its family members.
How S Alam turned these banks into cash cows:
According to a recent report by the news media, S Alam Group and its relatives withdrew over Tk45,000 crore from Islami Bank Bangladesh alone, with some reports suggesting the figure could be as high as Tk75,000 crore. Masud secured these loans in the name of S Alam Group, his relatives, and paper-based companies. The 2023 annual report of Islami Bank Bangladesh revealed that four companies owned by the group hold nearly Tk15,000 crore in loans from the bank.
Banking industry insiders estimate that S Alam Group’s total loans across various banks amount to at least Tk125,000 crore, with over Tk20,000 crore drawn from First Security Islami Bank where Masud has full control for over two decades.
