Bank-Insurance
How some Islamic banks issued dividends despite cash crunch
All the cash-strapped Islamic banks owned by S Alam Group disbursed cash dividends for 2023 to their directors and shareholders by taking liquidity support from the Bangladesh Bank under a special facility called the lender of last resort (LoR).
The central bank had to provide this special liquidity support last year by printing money, which ultimately ended up in the directors’ pockets.
The lender of last resort provides emergency credit to financial institutions that are struggling financially and are near collapse. Central banks use this instrument under the special authority of the governor to rescue banks.
On 28 December last year, the Bangladesh Bank provided liquidity support of Tk22,000 crore to seven banks, including five Shariah-based banks, under the LoR facility.
Of this amount, 90% was given to the five Islamic banks owned by S Alam Group – Islami Bank Bangladesh, Social Islami Bank, First Security Islami Bank, Union Bank, and Global Islami Bank – as their current accounts continued to face deficits due to a severe liquidity crisis.
These banks were granted LoR for only three days to artificially show a healthy balance sheet at the end of December 2023, as they were running short of the cash reserve ratio (CRR) that is mandatorily required to be maintained with the central bank.
When a bank fails to maintain the required CRR – an amount of funds that a bank holds in reserve to ensure it can meet liabilities in case of sudden withdrawals – it faces financial penalties from the central bank.
The continuous failure to maintain the CRR indicated that these banks were on the brink of collapse. Despite this, all five banks were allowed to declare cash dividends by the Bangladesh Bank while Abdur Rouf Talukder was governor, which goes against banking regulations and norms.
The respective department of the Bangladesh Bank initially denied permission for the cash-strapped banks to announce cash dividends, but reversed the decision after receiving verbal instructions from the governor, according to a senior executive of the central bank who wished to remain anonymous.
He stated that the dividends were allowed under special consideration.
All five banks disbursed 5-10% cash dividends for 2023, according to the Dhaka Stock Exchange (DSE) website.
Despite still being short of the required CRR, these banks completed cash dividend disbursements by January this year, taking further liquidity support from the central bank.
In 2023, the Bangladesh Bank printed Tk1 lakh crore in new money to provide liquidity support to cash-strapped banks, primarily Islamic banks.
Instead of taking corrective measures or punitive actions against the corruption that led these Islamic banks into a liquidity crisis, the central bank continued to provide cash support under the LoR facility.
The Bangladesh Bank did not even conduct any audits or investigations to determine the reasons behind the liquidity crisis in the S Alam Group-owned banks.
In the latest development, the Bangladesh Bank provided Tk35,000 crore in liquidity support to Islamic banks, mostly owned by S Alam Group, in a single day on 30 June under the authority of the governor, a central bank source confirmed.
Although the central bank continued to provide liquidity support, it did not recover the financial penalties imposed for the CRR shortfall, according to central bank sources.
Defending the LoR, Rouf Talukder, who recently resigned after the fall of the Hasina-led government, stated in a press conference held in January this year, “The governor is empowered by the Bangladesh Bank Order to provide liquidity support, so we provided it.”
How affluent Islamic banks fell into a liquidity crisis
Islamic banks, which were once the highest deposit banks in the country, began to lose depositor confidence in 2017 after S Alam Group forcibly took over two banks, Islami Bank and Social Islami Bank, while authorities remained silent.
Islami Bank, the largest private commercial bank, was taken over in January 2017. In October of the same year, some little-known companies purchased shares in the bank.
However, no authorities, including the Anti-Corruption Commission (ACC), questioned the source of the substantial funds involved with these obscure companies.
Following the takeover of these two banks, a total of six out of ten Islamic banks came under the control of S Alam Group, with relatives and family members of the business conglomerate occupying key positions in these banks.
S Alam Group began to misuse these banks as personal assets, taking loans through corrupt practices, which eventually led to significant trouble for these lenders.
For instance, Ahsanul Alam, son of S Alam Group Chairman Saiful Alam Masood, was appointed chairman of Islami Bank, the country’s largest bank, in June of last year at the age of 28.
This appointment, which came with central bank approval, did not raise questions about his capacity to manage the largest bank in the industry. His appointment was seen as a marriage gift.
In response to widespread criticism of the newly appointed chairman of Islami Bank, the Bangladesh Bank issued new guidelines regarding the experience and academic qualifications required for becoming a director of a bank.
Evidence of loan corruption also indicates misuse of the bank by the business conglomerate.
For example, in 2022, loans totalling Tk2,700 crore were approved for three unknown companies, with Tk900 crore allocated to each without any proper documentation.
All three companies were newly registered, and their office addresses were fake, as verified by the news reporter. Despite this, the Bangladesh Bank did not investigate the loan process.
This practice of approving loans for dubious borrowers has put depositors’ money at risk and contributed to a severe liquidity crisis for the bank.
As of the end of December last year, the bank’s loan book stood at Tk1.6 lakh crore, nearly Tk66,000 crore more than the deposit book, which was Tk1.53 lakh crore.
The advance-to-deposit ratio was 91.90%, exceeding the regulatory limit of 91%. This ratio would have surpassed 100% without the Bangladesh Bank’s liquidity support under the LoR facility.
If the investment-to-deposit ratio exceeds 100%, it means the bank has lent more than its deposits, potentially making it unable to repay depositors. The liquidity crisis at Islami Bank, the largest Islamic bank, has affected the entire Islamic banking industry due to the erosion of depositor confidence.
A central banker, speaking on condition of anonymity, said that without liquidity support, Islamic banks would have faced a capital shortfall, which would have negatively impacted their international credit ratings.
However, many international banks have cut off their credit lines with Islami Bank due to its growing bad reputation and failure in foreign payments, according to information obtained by the news reporter from some foreign lenders.
During conversations with this reporter, many foreign export-import companies expressed frustration with Islami Bank, citing issues with obtaining LC confirmations from foreign lenders due to payment failures and the bank’s poor reputation.
The decline in deposits at Islamic banks also reflects a lack of depositor confidence. From November 2023 to April 2024, Islamic banks experienced a more than ninefold increase in loan growth compared to their deposits.
According to central bank data, deposits in 10 Islamic banks increased by Tk2,808 crore during this period. In contrast, loans extended by these banks surged by Tk25,790 crore over the same timeframe.
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.
