Islami Bank’s deposits fall by Tk 19,000 crore in one month

Islami Bank PLC has become largely rudderless. For more than four months, the country’s largest private sector bank, a Shariah based financial institution, has been operating without a full board of directors.

Although the institution suffered extensive looting by the controversial business conglomerate S Alam Group, Bangladesh Bank Executive Director (ED) Mohammad Zahir Hossain was given sole responsibility for the bank’s overall board functions, including the chairmanship, on June 14. The main objective was to restore customer confidence in the bank and stop the unusually high rate of withdrawals.

In June alone, the central bank provided Tk 17,000 crore in cash assistance to help the bank meet customers’ withdrawal demands and restore confidence. Although the rush to withdraw money subsided, there was no visible evidence that confidence had returned. Instead, depositors withdrew nearly Tk 19,000 crore more than they deposited in the bank in a single month.

Customers are primarily suffering from a crisis of confidence because the bank has no full board. Problems persist as Islami Bank’s board is being run by a single person without adequate Shariah expertise. In addition, concerns are growing that an initiative to send five experienced deputy managing directors (DMDs) into compulsory retirement this month could plunge the bank into a new crisis, even though they have not reached the age of 60.

An analysis of Islami Bank’s transaction data shows that in the first week of June this year, most depositors facing a crisis of confidence rushed to withdraw their money. However, the bank failed to return money according to customers’ demands. It sought assistance from Bangladesh Bank to resolve the crisis.

As the regulator, Bangladesh Bank first dissolved the board and appointed ED Zahir Hossain with the powers of the chairman. It also provided Tk 17,000 crore in cash liquidity support.

As a result, customers gradually began depositing money again while continuing to withdraw funds when necessary. However, the bank’s corporate customers did not regain much confidence. Nearly 30 million customers continued to struggle with uncertainty over the bank’s stability.

Many customers repeatedly demanded a full board at all locations, including branches and subbranches. The Conscious Customers Forum also organized various programs in front of the bank’s head office and branches, demanding a full board. However, despite more than four months having passed, the central bank has not appointed a full board for reasons that remain unknown.

By then, the bank’s deposits had fallen by Tk 18,781 crore. On May 31, the bank’s deposits stood at Tk 184,374 crore. By June 30, the figure had dropped to Tk 164,621 crore. The latest updated figure, as of September 30, stood at Tk 165,923 crore.

Although there has been a slight improvement, it has largely been driven by the bank’s decision to suspend major loan disbursements. There has also been no momentum in recovering defaulted loans.

Hamidul Haque, a customer at Islami Bank’s Local Office, said, “The government’s or the central bank’s position on Islami Bank is not clear. I do not have confidence in the bank. That is why I withdrew Tk 20 lakh in August and deposited it in two state owned banks. I have heard that five of the experienced DMDs who previously worked there will be removed this month even though they have not reached the end of their service period. The bank will face a major crisis then.”

Conversations with officials revealed that these five individuals were promoted from senior executive vice president (SEVP) to DMD in 2024. Although their promotion and appointment letters specified a two year appointment, the letters stated that they would enjoy all employment benefits until the age of 60 and that their employment would remain subject to the bank’s service rules.

None of the five DMDs will turn 60 by October 30. However, on the grounds that their two year contractual terms are ending, the bank is preparing to send them into compulsory retirement on October 30.

The five DMDs are Mahmudur Rahman, Monirul Alam Al Mamun, Rafiqul Islam, Mohammad Said Ullah and Maksudur Rahman. All five have served in various positions for many years and reached the bank’s senior leadership through their professional competence.

Bank employees said that as the country’s largest bank, Islami Bank plays a significant role in remittances, foreign trade, industrialization, employment generation and women’s empowerment, among other areas.

Naturally, Islami Bank also plays a leading role in implementing programs related to national priorities as directed by Bangladesh Bank. These five officials are responsible for implementing central bank directives and handling the bank’s policymaking, fund management and investment management, which are among its most important functions.

They also have close relationships spanning more than three decades with depositors, investment customers and foreign representatives. Removing them could leave the struggling bank facing another leadership vacuum and a severe crisis of confidence.

It has been learned that the five DMDs have applied for extensions to continue working until the age of 60. An official from the bank’s administration department, speaking on condition of anonymity, said they had explained the rationale for renewing their employment in their applications.

They argued that the bank’s existing human resources policy, the terms of their appointment letters and the laws of the country entitle them to remain in service until the age of 60.

Their applications also stated, “According to paragraph 1.14 of Chapter 04 (Promotion Policy) of the bank’s service rules, appointment to the post of deputy managing director is essentially a promotion. Before 2017, this post was not contractual. The contractual framework introduced later is merely an administrative arrangement that does not change the fundamental nature of the promotion.”

In a verdict on a similar case on August 19, a High Court bench stated, “The rights and eligibility for promotion that an officer or employee has at the time of entering service cannot be taken away later by amending regulations or rules.”

A source at Bangladesh Bank said that on September 6, the bank’s chairman and Bangladesh Bank ED Mohammad Zahir Hossain sent a letter to the central bank governor highlighting the importance of these officials and seeking instructions on extending their tenures.

The letter stated, “Islami Bank is an Islamic Shariah based bank. They have extensive experience in formulating policies and strategies in this regard and implementing them. Moreover, their ability to establish communication with Islami Bank’s customers is unique in the country’s banking sector and cannot easily be replaced.”

Bangladesh Bank ED Zahir told Agamir Somoy, “We will make every effort to do whatever is necessary for the bank. As for extending the DMDs’ service periods, I cannot do that. The governor knows better about this. The decision to appoint a full board is also not in my hands. It is a matter for the central bank. I cannot comment beyond that.”

Islami Bank Acting Managing Director Altaf Hossain said that Islami Bank was returning money to customers according to their demands. There was no major crisis, and Bangladesh Bank was monitoring the situation.