Scams and irregularities by S Alam Group pushed the shariah-based bank into crisis, as toxic assets continue to surface
Non-performing loans (NPLs) at Islami Bank Bangladesh crossed Tk 1,00,000 crore by September after years of loan scams and lending irregularities tied to S Alam Group left the once very profitable commercial lender under severe strain.
At the end of September, total loans disbursed by the bank stood at Tk 1,81,860 crore. Of this, Tk 1,06,000 crore had turned bad, according to Bangladesh Bank (BB).
BB data show that more than half of the bank's portfolio had slipped into non-performing loans.
Bad loans rose by Tk 88,248 crore in just a year. At the end of September last year, the bank's defaults stood at Tk 17,752 crore, which accounted for 11 percent of its loans.
The commercial lender also faces a provision shortfall of Tk 85,886 crore. Banks set aside provisions as a buffer against losses, and such a large shortfall points to the scale of the damage.
Islami Bank officials said S Alam Group took out loans under both official titles and proxy names during the previous regime, when the conglomerate used to dominate the board. Many of these loans later fell into default.
They said misdeeds by one business group have pushed the bank to its current state.
After the fall of the Awami League government in a mass uprising in August last year, the bank was freed from the control of the S Alam Group. The central bank dissolved the bank board dominated by individuals linked to Chattogram-based S Alam Group.
The political changeover also exposed long-buried toxic assets that had piled up over the years. Since then, the shariah-based bank's balance sheet has been deteriorating.
Until June 2024, bad loans at the bank were only Tk 7,724 crore, or 4.42 percent of its loans. But within a month of the government's fall, defaults jumped to Tk 17,752 crore, or 11 percent.
NPLs at the bank rose to Tk 32,817 crore, or 21 percent, by the end of last year and reached Tk 47,618 crore, or 27.38 percent, by the end of March this year.
S ALAM ALONE TOOK OUT TK 70,000CR
S Alam Group maintained its hold over Islami Bank for around seven years. The bank's financial performance had weakened soon after the group began influencing decisions following an ownership takeover in 2017.
Between 2017 and August 2024, the group alone took out around Tk 70,000 crore through its own businesses and a series of shadow firms.
Loans were taken in the names of Mohammed Saiful Alam, chairman of S Alam Group, his family members, and several associates, according to central bank officials.
About Tk 66,507 crore of this amount had defaulted by the end of the September quarter.
Saiful Alam and several senior officials of the group are now on the run. The Daily Star could not reach them for comment.
Nabil Group, a close ally of S Alam Group, borrowed about Tk 13,000 crore under its own name and through anonymous entities. A portion of that amount has been rescheduled recently under a special policy, according to Islami Bank officials.
Contacted, Md Aminul Islam, managing director of Nabil Group, said, "The loans taken in the name of Nabil Group are regular, but I know nothing about the loans that were taken anonymously. I have never defaulted on any loan."
Other large borrowers of Islami Bank include Nassa Group, Noman Group, Deshbandhu Group, Jamuna Tyre, GMS Group, Murad Enterprise, AJ Trade International, Delta Group, Bashundhara Multifood Group and Mahmud Denims Ltd.
FUNDS STUCK ACROSS TROUBLED LENDERS
Islami Bank lent about Tk 10,000 crore to five banks that are now being merged. The lender has yet to recover the money.
A senior Islami Bank official said the central bank assured them that they would receive shares in the new merged bank instead of cash repayment.
Janata Bank also owes Tk 1,000 crore and has missed repayment, the official added.
Before the political changeover, Islami Bank had faced a severe liquidity crisis and even ran a deficit in its settlement account with the central bank.
Officials said the cash position has since stabilised and depositors are now
Source: Annual report
able to withdraw funds without difficulty, although the mountain of bad loans remains a cause for concern.
Contacted, Omar Faruk Khan, managing director and CEO of Islami Bank Bangladesh, said the bank's liquidity is now "very strong". He said the bank is stepping up loan recovery efforts through legal action and other means.
The lender has filed 488 cases against defaulters. These include 34 cases at the Artha Rin Adalat involving Tk 66,507 crore, 377 criminal cases, 1,881 involving Tk 19,996 crore, and 10 related to stock disposal worth Tk 28,064 crore.
Khan said they are prioritising cash recovery while allowing genuine businesses to reschedule their loans. "Our target is to bring down non-performing loans from 50 percent to 35 percent," he said.
He added that recovery has slowed as business activity remains sluggish ahead of national elections due next February.
"Besides, we are signing agreements with international legal firms to recover foreign assets. Our main target now is recovery," he told The Daily Star.
In 2023, Islami Bank recorded a net profit of Tk 635 crore, the highest in four years. Next year, net profit fell sharply to Tk 109 crore. During the January-September period this year, profit of the bank stood at Tk 99 crore, down from Tk 267 crore in the same period last year.
STAFF HIRED BY S ALAM REMOVED
Islami Bank has dismissed 4,685 employees who were allegedly recruited by S Alam Group without proper procedures. It has since hired 2,571 new staff.
An internal audit found that more than 10,000 of the bank's 21,000 employees had been appointed after the 2017 takeover.
Bank documents show that 7,224 people from Chattogram were hired between 2017 and 2024, with more than 4,500 from Patiya upazila alone -- the hometown of Saiful Alam.
M Kamal Uddin Jasim, additional managing director of the bank, said most of the 11,000 appointments made during the period were not transparent, with no official circulars issued.
He said those whose recruitment raised the most serious concerns had been dismissed.
The bank has recruited 1,400 trainee assistant officers (cash), 806 messengers cum guards and 365 security guards as part of its restructuring, he added.
