Did removal of observer trigger irregularities in IBBL?

The Bangladesh Bank had appointed an observer – a watchdog system to closely monitor banks that show signs of poor financial health, suspicious activities or irregularities – at the Islami Bank Bangladesh Ltd (IBBL) back in 2010.

This bank was facing allegations of involvement in militant financing. After ten years, in March 2020, the regulator suddenly withdrew its observer from the IBBL. The withdrawal of an observer should indicate that a bank is in good health, but the reality is quite different for IBBL.

Islami Bank Bangladesh Ltd has become mired in controversy after a number of IBBL documents and media reports alleged that the bank approved Tk 9,135 crore to 11 ghost and obscure companies.

A number of experts and industry insiders now pose a question, why did the central bank withdraw its observer from the IBBL just before the bank reportedly got involved in numerous loan irregularities?

Commenting on the matter, Policy Research Institute of Bangladesh Executive Director Ahsan H Mansur said, “The central bank withdrew its watchdog from the IBBL because an influential business group owns this bank.

“The bank’s health was very good when Jamaat-e-Islam used run it, but now the Chittagong based business group S Alam has played a key role in making the bank’s condition worse.”

He continued, “The central bank indirectly helped those involved with the loan irregularities by withdrawing its observer, because if there was an observer at the IBBL, the culprits would not have been able to take out such a large amount of loans.

“The Bangladesh Bank should take over the IBBL as soon as possible. Otherwise its health will deteriorate further. The depositors should also withdraw their deposits from this bank.”

The Business Post had approached central bank Executive Director and spokesperson Abul Kalam Azad, but he declined to make any comments on the matter.

Zahid Hussain, former chief economist of World Bank Dhaka Office, said, “How did the IBBL get involved in such a large loan irregularity despite the central bank’s surveillance? The regulator did not address this issue properly because an influential business group owns the bank.

“When such loan irregularities occur in any bank, the depositors lose trust. This is very dangerous for the country’s economy.”

Alleged irregularities of IBBL

On June 5 this year, the Islami Bank Bangladesh Ltd (IBBL) – in their 1,970th executive committee meeting – approved at Tk 950 crore as loans to new client Nabil Grain Crops Ltd, to be disbursed from the bank’s Gulshan branch.

During that period, the company had only Tk 8.5 lakh exposure in several banks and non-bank financial institutions, according to their CIB (Credit Information Bureau) report.

The company belongs to the marginal category (new company) as per the Internal Credit Risk Rating System (ICRRS), said the Bangladesh Bank in its observation report.

Central bank officials say the IBBL should have taken at least Tk 230 crore as collateral, including Tk 110 crore as deposits, from the company. As such safeguards are not mandatory under the easy loan condition, the loans are very risky.

The IBBL Rajshahi branch approved Tk 3,100 crore as loans to a number of Nabil Group companies, including Tk 700 crore to Nabil Feed Mills Ltd in June.

In the meeting minutes, the bank claimed that Nabil Feed Mills Ltd and Nabil Grain Crops Ltd are not companies of the same group. However, the central bank suspects that both those companies belong to the Nabil Group.

If this is the case, then the IBBL has exceeded the single borrower exposure limit, which is a violation of The Bank Company Act, mentions the central bank’s observation report.

However, after a recent government directive, the central bank asked the bank to suspend the disbursement of Tk 9,135 crore in loans to those companies until further notice.