Bank-Insurance
Why S Alam took so much interest in Shariah-based banks
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.
Bangladesh Bank Governor Ahsan H Mansur has announced that the central bank will increase the policy rate twice within the next month to combat rising inflation. During a press briefing on Monday, Mansur said, “We will follow a contractionary monetary policy until inflation is brought under control. The policy rate will be raised next week and again next month.”
The governor expressed optimism about inflation stabilizing by March or April, although he did not specify the expected inflation rate. “While we can’t predict the exact level of inflation, we will tighten policies to bring it down. Our exchange rate remains stable, and remittances are on the rise, which should help ease inflationary pressures,” Mansur added.
Recent Rate Hike Follows a Series of Increases
On 25 August, the central bank raised the policy rate by 50 basis points, bringing it to 9% as part of its efforts to tackle high inflation. This marked the third increase in the key interest rate this year. Mansur had previously indicated that the policy rate, or repo rate, could potentially rise to 10% in phases.
Plans to Merge Smaller Islamic Banks
The governor also discussed the possibility of consolidating smaller Islamic banks. “Merging smaller banks would be beneficial. While no formal decision has been made, we are considering the option,” he said. Mansur explained that past irregularities had caused some bank owners to lose their ownership, which could make the process of consolidation easier.
He assured that depositors’ funds would be safeguarded, even if the banks are merged. “We will take actions based on the situation, but depositors’ money will be returned,” Mansur promised.
Task Force Established for Banking Sector Reform
Mansur further outlined that a task force has been formed to address issues in the banking sector, focusing on identifying distressed assets and recovering them. Initially, the task force will work with three banks, followed by an additional six. The team consists of 14 Bangladesh Bank officials, divided into three groups, with six members specifically overseeing larger Islamic banks.
Development partners will provide funding for these efforts, with external and international auditing firms assisting in the process. “Our first step will be to assess how much money has been withdrawn, both in name and covertly. If funds have been transferred abroad, we will work on bringing them back under international law,” Mansur explained.
Liquidity Support for Weaker Banks
The governor noted that some depositors were shifting their funds from weaker banks to stronger ones, creating liquidity challenges for the former. To address this, the central bank will provide funds from more liquid banks to those in need, ensuring that Bangladesh Bank covers any shortfalls if weaker banks are unable to repay.
Potential Changes in Bank Loan Targets
Mansur also mentioned the possibility of reducing the budget target for bank loans by Tk50,000 crore. This move could potentially boost private sector investment. “If we can reduce inflation to around 4%-5%, we will have the opportunity to lower interest rates,” he stated.
Bangladesh Bank (BB) has received a loan proposal totaling $2.5 billion from the World Bank (WB) and the Asian Development Bank (ADB) in several packages, aimed at supporting structural reforms, policy implementation, and investment projects.
The proposal was presented today during a meeting between Bangladesh Bank Governor Ahsan H Mansur, senior officials, and delegations from both the WB and ADB at the BB headquarters. The information was confirmed by BB spokesperson and Executive Director Husne Ara Shikha.
“The World Bank has proposed a $1 billion loan, which includes a $750 million policy-based loan requiring the central bank to implement specific policies. Additionally, a $250 million investment loan is currently in process,” said the BB spokesperson.
Similarly, the ADB has proposed a $1.5 billion policy-based loan, which will be disbursed in three phases, including a $200 million investment loan. According to the central bank spokesperson, $500 million of the loan could be received by 2025.
Additionally, a visiting US delegation, led by Brent Nieman, Assistant Secretary of the US Treasury Department, met with the central bank governor today. During the meeting, the delegation was briefed on the country’s macroeconomic conditions, though no specific loan amount was discussed by the US treasury team.
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.
