The central bank appointed new observers to Islami Bank and First Security Islami Bank on Sunday along with the seven public and private banks, which have recently come under fire for loan irregularities.
Following reports of multiple alleged anomalies in loan disbursement, Bangladesh Bank issued a most recent instruction on December 12 appointing observers to the two banks.
There are now nine public and private banks that have observers designated by the central bank.
The private banks are One Bank, ICB Islami Bank, Islami Bank, and First Security Islami Bank in addition to the state-owned Sonali, Janata, Agrani, Rupali, and Basic Bank.
According to the central bank, its Forex Reserve and Treasury Management Department Director Abul Kalam will serve as the observer to Islami Bank, while Payment Systems Department Director Motasim Billah will serve the post at First Security Islami Bank.
However, bankers and economists are concerned that even after the appointment of observers, the public and private banks under the supervision of the central bank are not able to reach a very favourable condition.
If the financial health of a bank worsens or is at risk of worsening, the central bank can appoint an observer to that bank as per the Bank Company Act.
In this situation, the rising question remains as to how much it is possible to restore general depositors' trust, especially when these banks' various irregularities were not unknown to policymakers from long ago.
Ahsan H Mansur, executive director of the Policy Research Institute (PRI) believes that the poor condition of some banks was not unknown to the policymakers of the banking sector.
He said, information about S Alam Group having bought a bank with money from another lender and taken controlling stakes in other banks is surfacing now, but people in the banking sector and those involved in economic policy-making knew about the developments.
The concerned banks, the Bangladesh Bank, and even the Finance Ministry were aware of the matter, but everyone remained silent.
“It has ownership in so many banks. This is a big challenge for the banking sector,” the chairman of Brac Bank also added.
The former official of the International Monetary Fund (IMF) also said that the truth should be found out by carrying out probes by a third party.
None of the information and statements of the Islamic Bank authorities is acceptable, he added.
IBBL, however, claimed in a recent newspaper advertisement that it did not grant any false loans and that all loans were granted in compliance with the law.
Mohammed Monirul Moula, managing director and CEO of Islami Bank Bangladesh Ltd told the media that it would be better if Bangladesh Bank takes care directly through an observer.
He also claimed that initially, the depositors started withdrawing money due to various campaigns but now it is stopped.
According to Bangladesh Bank sources, in 2010, an observer was appointed to the Islami Bank for the first time in the wake of banking irregularities.
In 2017, the popular private bank witnessed a major ownership change and then in 2020, the central bank withdrew its observer.
Bangladesh bank and HC
Regarding the observer appointment, Bangladesh Bank Executive director and spokesperson Mezbaul Haque earlier said several instructions are given to the two mentioned banks and observers will monitor whether these instructions are being followed or not.
“The newly appointed observers will now attend the meetings of the board, executive and audit committees of the two private banks. Subsequently, they will update the central bank about the meetings. Also, the observers will perform their assigned duties,” he explained.
Earlier, according to several media reports, three Islamic banks made headlines for allegedly giving a large loan to a private company in August this year.
The media reports put the banks in the spotlight as the Bangladesh Bank initiated a probe. A three-member probe committee was formed.
Meanwhile, on December 4, The High Court ordered the authorities concerned to probe into the much talked about and reported “loan scam” in three banks – Islami Bank, Social Islami Bank Ltd and First Security Islami Bank – and submit the report within the next four months or April 5.
The HC bench of Justice Md Nazrul Islam Talukder and Justice Khizir Hayat passed the order after issuing a Suo Motu (voluntary) rule following newspaper reports.
The court directed Bangladesh Bank's Bangladesh Financial Intelligence Unit (BFIU), Anti-Corruption Commission (ACC) and Bangladesh Police's Criminal Investigation Department (CID) to submit the probe report.
At the same time, the court ordered the authorities of these three banks to submit the list of bank officials involved in approving loans worth thousands of crores of taka.