BB dissolves Islami Bank board, appoints administrator

The Bangladesh Bank has dissolved the entire board of directors of Islami Bank Bangladesh PLC, including its chairman Md Khurshid Alam, amid an acute liquidity crisis triggered by massive deposit flight, protests, political controversy and warnings of widespread fallout by bankers.

The regulator also appointed its Executive Director Mohammad Zahir Hossain as an administrator to run the country's largest shariah-based lender. 

Zahir Hossain will exercise all board powers and responsibilities under Section 47(3) of the Bank Company Act, 1991, BB Assistant Spokesperson Mohammad Shahriar Siddiqui said in a press statement today.

The decision was taken under Sections 45 and 47(3) of the Bank Company Act in the interest of the bank, its depositors and the public, the central bank said.

The move comes as Islami Bank faces a severe liquidity crisis, with its current account with the central bank falling into a deficit of around Tk 4,000 crore in the past two weeks amid protests and controversy surrounding Khurshid Alam's appointment.

The BB today injected Tk 2,500 crore in emergency liquidity support to help the lender address the shortage.

The crisis unfolded rapidly after the BB appointed Khurshid Alam, a former deputy governor, as chairman of Islami Bank on May 24 just hours after the previous chairman resigned, and just as the country was heading into a week-long Eid holiday.

The appointment triggered immediate concern among stakeholders. 

After the holidays, protests erupted outside the bank's Motijheel head office in Dhaka on June 1, with demonstrators under the banner of the Conscious Customers' Forum demanding cancellation of Alam's appointment and reinstatement of former managing director Omar Faruk Khan.

The demonstrations coincided with accelerating deposit outflows.

The bank's current account with the BB, which had been in a positive position until May 31, slipped into a deficit of around Tk 4,000 crore within two weeks.

Total deposits fell from Tk 1,84,382 crore on May 31 to Tk 1,80,141 crore by June 7, as customers withdrew around Tk 1,000 crore a day on average. 

Facing the pressure, the bank imposed a Tk 50,000 cash withdrawal limit per customer at the branch level, though some customers reported branches in Dhaka were allowing withdrawals of only Tk 10,000.

The bank also failed to maintain the required cash reserve ratio with the central bank and sought Tk 10,000 crore in liquidity assistance last week. 

Acting Managing Director Md Altaf Hossain told The Daily Star that the fund transfers and clearing operations resumed after the central bank's intervention, and that the newly received funds would be deployed based on withdrawal patterns, sectoral requirements and projected liquidity needs.

Islami Bank currently holds the largest volume of non-performing loans in the banking sector, amounting to Tk 95,629 crore -- or 50.88 percent of its total loans — much of it linked to S Alam Group.

The controversial conglomerate took over the bank in 2017 and allegedly channelled around 80 percent of its loans to its own companies and affiliated firms.