Reforms take toll on Islami bank’s performance

The country’s once-leading Islami Bank Bangladesh Limited (IBBL) has witnessed a significant drop in its half-yearly profits, following two major shake-downs in the IBBL management board. Since the shakedown in 2016, most of the bank’s key financial indicators have dropped. Furthermore, the original mandate of the reforms, which was to rid the bank of the allegations of terror financing, also appears to have hit a snag. According to the latest quarterly financial report of the IBBL, the amount of deposit in the bank had been decreasing in the first six months of current year, compared to that period of the previous year.

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Meanwhile, the disbursement of loans witnessed a spike during this period. The report shows that IBBL received a total deposit of Tk2,298 crore during January to June of the current year, while the bank received deposits of Tk3,310 crore during that same period of the previous year. The bank disbursed credit of Tk5,031 crore during the first six months of this year, while the bank disbursed Tk3,521 crore in the corresponding period in 2016. Along with an increase of disbursed loans, the number of defaulted loans in the IBBL also spiked during the tenure of the new management in the first six months of this year, according to the latest statistics of Bangladesh Bank.The Bangladesh Bank data further shows that the IBBL for the first time since its inception ranked at the top in defaulted loans category among other private banks. At the end of June, 2017, the defaulted loans reached to Tk3,528 crore, while the bank’s defaulted loan was Tk2,233 crore at the end of December, 2016. In the first six months of this year, the bank’s defaulted loans increased by Tk1,285 crore. IBBL’s latest financial report showed that the bank’s profit margin has decreased during January to June this year, compared to the corresponding period of the previous year. The report also indicates that the IBBL had made a profit of Tk161.27 crore in the first six months of this year, which has dropped by 52.73%, compared to Tk246.31 crore on the same period last year.

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The bank’s higher loan provision to compensate for rising defaulted loans has affected its profit. The bank’s financial report revealed that the bank had a provision of Tk352.29 crore at the end of June this year, which has gone up compared to Tk175.95 crore of the same month in 2016. IBBL is also facing a liquidity crisis for disbursing more credit than the received deposit. The commercial bank, operating under Islamic Shari'ah law, has undergone a series of reforms at ownership and managerial levels since 2016. The reforms were implemented in an effort to negate the influence of a certain political faction, and in the wake of allegations of terror financing against the bank. However, the process has failed to bring any fundamental change, but has had a negative effect on the bank’s financial performance. According to sources, the IBBL was accused of having close ties with the Islamist political party Bangladesh Jamaat-e-Islami – since the bank’s inception in 1983. As a first step towards a series of reforms, four new independent directors were appointed in May, 2016. The then chairman and the managing director stepped down from their positions on January this year. IBBL underwent the latest reform process in May, as two independent directors resigned over conflicting opinions on several of the bank’s management policies. Responding to a question regarding the decrease of almost all the major financial indicators, IBBL Chairman Arastoo Khan told the Dhaka Tribune: “It is true that some financial indicators of the bank have dropped significantly. However, there is no need for concerns, as the problems are temporary.” “You cannot judge a bank’s overall performance on the basis of its performance in six months. I can ensure you that at the end of this year [by December, 2017] the bank will show an improvement in all the financial indicators,” Khan said. Under the current circumstances, the central bank has asked IBBL authority to formulate a work plan for improving the bank’s financial performance by December this year, BB sources told the Dhaka Tribune.

Is the IBBL free of Jamaat’s influence?

The reforms were implemented at the IBBL to rid the bank of Jamat’s influence. However, IBBL’s new board is yet to show any results on ridding the bank from Jamaat’s influence and on launching a thorough investigation on allegations of terror financing. The task force to strengthen action against militancy financing has asked officials of the Bangladesh Bank, Islamic Foundation, and all intelligence agencies to investigate the suspected links between pro-Jamaat borrowers of IBBL and terror financing. The bank’s Independent Director Shamim Mohammad Afzal, who raised his voice against Jamat’s influence before his appointment at the IBBL, has refused to comment on the issue. Speaking on the matter, he told the Dhaka Tribune: “It has been decided at an IBBL board meeting that only the chairman of the bank can make comments on the topic.” The task force, in a directive sent to the government bodies on June 21, stated that 90% of the loan receivers from IBBL were involved with Jamaat’s politics. It also asked IBBL authorities to submit statements of dividends provided to its non-profit depositors since the inception of the bank in 1983. A meeting, co-chaired by Industries Minister and chairman of the task force Amir Hossain Amu, was held on July 21 in this regard. Present at the meeting, Home Minister Asaduzzaman Khan Kamal said Bangladesh Bank must inform intelligence agencies, as soon as they get any information, about these illegal transactions. Based on that, the intelligence agencies will carry out further investigation, he had said. Meanwhile, State Minister for Foreign Affairs Mohammed Shahriar Alam informed the meeting that the director general of the Islamic Foundation, the charitable branch of IBBL had failed to submit detailed reports on the expenditure of Islami Bank’s Corporate Social Responsibility (CSR) funds. IBBL has so far disbursed Tk61,641 crore to 751,300 borrowers, and most of the borrowers had links to Jamaat-e-Islami, which has been accused of funding terrorism and anti-government activities across the country, sources claimed.