Islami Bank, the country’s largest and the most profitable bank is facing a serious existential problem within just five months of the take over by a new management wresting its control from Jamaat-e-Islam members. Initially it appeared as an attempt of political cleansing with the government’s support. But the new infightings within the bank which saw the removal of one of the two vice chairmen on Tuesday, appointed by the new management, at its annual general meeting clearly showed the ominous sign of the bank’s further destabilization.
Seven out of its 19 directors had suddenly threatened publicly on May 20 to resign if any one of them were pressured to quit the board. The Vice-Chairman has been removed but his post as an independent director remained unaffected. It remains unclear what the dissenting directors will now do following the VC’s removal, who happens to be their leader.
Factors behind the move
The conflict mainly stemmed from loan irregularities to the tune of Tk 1400 crore disbursed to affiliated companies of a Chittagong based business group without proper approval by board of the bank. The chairman, who represents the big business group from Chittagong did it on his own accord. Besides, the announcement of 10 percent cash dividend to the Islami Bank shareholders when the bank had actually recorded a sizeable profit of Tk 450 crore in 2016 left most directors unhappy.
They also blamed the chairman Arastoo Khan, a retired bureaucrat enjoying the government’s confidence, of arranging the loan and also declaring low dividend. They alleged that “the meagre dividend” was intended to frustrate general shareholders and sell their shares at low cost. The Islami Bank share was traded for around Tk 45 before and dropped by 30 percent to Tk 31 after the dividend was announced.
The dissenting directors were also vocal against the interference of the chairman in running the affairs of the bank. Reports say the Chittagong Group registered seven companies only a year ago and almost overnight bought about 14.2 percent of the bank’s shares through them and called for restructuring of the Islami Bank with the consent of the concerned authorities. Now they are working to buy more shares and establish their monopoly control over the bank.
As per the new amendment to Banking Company Law, four members of a family can now become directors of a private bank and over longer period. The dissenting directors accuse the Chittagong Group of conspiring to take over the Islami Bank by purchasing more shares from the market with the money they were given by the bank as loan. The Islami Bank is going to be a family bank soon, they alleged.
Business sources say that it looks bad to see how a very successful and well-established bank having global rating is being destroyed allegedly by a group of vested interests.. The bank’s over one crore depositors are concerned about the safety of their funds. The bank was set up in 1983 with 70 percent of the fund coming from the sponsors in the Middle East. It grew in strength every year and lately, it has been handling about 30 percent of Bangladesh’s total foreign remittances.
Industry sources say the bank has financed almost one in every four textile and garment factories in the country. But with the news of internal feuds spreading fast, the remittance collection has already declined by 13 percent. It is too early to say how the bank’s financing of trade and industrial investment will be affected.
Meanwhile, the loan scandal has become highly volatile. One of the loans worth Tk 132.60 crore was approved by the new board for Infiniti CR Strips Industries—a new company formed in February this year. The loan proposal came from Chittagong’s Khatunganj branch and the client is a sister concern of Armada Spinning Mills, one of the companies related to “the controversial business group.”
Arastoo Khan represents Armada Spinning Mills, a new company that has more than 2 percent shares in Islami Bank. It is said, Infiniti’s loan for building a steel-sheet manufacturing plant did not include information about the client’s banking activities.
In another instance, the board also increased the loan limit for Sister Denim Composite, an affiliate of Thermax Group from Tk 135 crore to about Tk 200 crore. The loan was given allegedly violating the central bank’s investment risk grading rule. The bank’s board also gave loans of over Tk 800 crore for six companies of Nassa Group, some of them are defaulters but the issue was overlooked when the loans were approved. Nazrul Islam Majumder, Nassa Group’s Chairman is also the chairman of the Bangladesh Association of Banks.
Foreign investors concerned
Insiders say bank’s vice chairman Syed Ahsanul Alam who was removed to silence the voice of dissent, although the board chairman Khan blamed him for spreading lies against the bank management. The board now decided to keep one post of vice chairman and Yousif Abdullah Al-Rajhi will continue in this position. Alam, however, said it’s impossible for the directors to carry out their responsibilities properly if they have no power to fight the mismanagement of the bank.
Al-Rajhi will have one more director the Islami Bank raising the number to 20 at a time when Arab investors are planning to sell their shares. However, after the AGM, Al-Rajhi told reporters that the pace of changes in Islami Bank had left the foreign investors concerned.
The dissenting directors had alleged that the Chittagong Group bought shares of the Islami Bank in the name of seven companies that were registered with the Registrar of the Joint Stock Companies and Firms last year. The Arastoo Khan-led board disbursed loans breaking rules of business.
At the AGM representative of Islamic Development Bank declared it would sell 8.70 crore shares out of its total holding of 12.08 crore shares in the bank at current market price. The company will sell the shares within next 30 working days reflecting that the Arab investors have lost their faith in the new Islami Bank board, which did not inform them about making changes in board management.
In a new development, Excel Dyeing and Printing Limited, one of the seven companies of the Chittagong Group announced that it would buy 32.04 crore shares of Islami Bank within the next 30 days.
Areef Suleman, IDB’s representative in Islami Bank said they are not leaving, they are only reducing their shares to 2.1 percent up from 7.5 percent now.