Islami Bank Bangladesh loan policy

Bangladesh Bank has granted a special loan of 80 billion Taka (8,000 crore) to Islami Bank Bangladesh Limited (IBBL) amid liquidity constraints, granting a rare blessing.

The crisis is in fact so severe that the bank failed to meet its liquidity reserve ratio (CRR), i.e. the set minimum amount of deposits that a commercial bank must hold as reserves with the central bank, for a total of 24 days in November and December 2022. The bank faces a fine .

The Central Bank provided IBBL with this facility without accepting a deposit in the form of Sukuk (Islamic bond or “Sharia-compliant” bond) at an interest rate of 8.75%.Typically, Sharia banks borrow money from Bangladesh Bank by depositing Sukuk and Government of Bangladesh Islamic Investment Bonds (BGIIB).

But Islami Bank's useful guarantee is over. For this reason, the central bank has lent money to IBBL as part of a rare privilege, although Sharia banks do not have the advantage of lending money at a specific interest rate.

Mohammed Monirul Moula, Chairman of

Islami Bank (MD), wrote a letter to the Central Bank on December 29, 2022, requesting this special financing.

Bangladesh Bank accepted the application within hours of submitting the application and the funds were disbursed on the last business day of 2022. This enabled Islami Bank to present its financial statements in a relatively better condition than the actual ones. Condition: illness.

Mohammed Monirul Moula could not be reached when Prothom Alo tried to inform him of the situation on Sunday evening. However, speaking to Prothom Alo on Sunday morning, he said: “There is no liquidity crisis in the bank. The situation is improving.

What happened

Many retail and corporate customers transferred their deposits from Islami Bank to other banks after information emerged about large-scale loan fraud cases within the bank. Several customers also transferred their dollar deposits to the bank. As a result, the bank got caught up in the euro and dollar crises in November and December.

In this context, the Bank failed to maintain the Central Bank's cash reserve ratio for a total of 24 days between November and December 2022. This situation is called current deposit deficit according to Bangladesh Bank guidelines.

According to Bangladesh Bank, Islami Bank's liquidity situation is extremely precarious. According to the central bank's calculations, due to the gradual decline, the bank's liquidity reserve ratio deficit fell to Tk 51.01 billion on December 28. Islamic banks are required to maintain a liquidity reserve ratio of 4% and a statutory liquidity ratio (SLO) of 5.5%.

On the advice of several central bank officials, the IBBL CEO requested a special liquidity allocation on December 29th. Analyzing the regulations, central bank officials said they could not lend money to sharia banks because the benefits could be used to lend money to other commercial banks. For this purpose, as a last resort, Bangladesh Bank has decided to lend money to Islami Bank for a day at a special repo rate.

Speaking to Prothom Alo, Bangladesh Bank spokesperson Mesbaul Haque said that Bangladesh Bank provides assistance as a last resort when a bank faces a liquidity crisis. Islami Bank applied for liquidity assistance and the central bank provided it Tk 80 billion.If the crisis continues, the bank will receive further aid. He added that Padma Bank and ICB Islami Bank also benefited from this benefit.

How to solve However, experts assume that such liquidity support cannot improve the bank's situation without measures.

Policy Research Institute executive director Ahsan H. Mansur told Prothom Alo: "The government and the Bangladesh Bank must be aware of the gravity of the problem before giving public funds to Islami Bank." People kept deposits with the Bank and at the same time the central bank also transferred money there.Therefore, the decision has to be made considering all aspects as Islami Bank is the largest bank in the country.

“There is no benefit in donating money in this way without ensuring accountability. This will encourage corruption and irregularities. It is important to locate the opening of the bucket before filling it with water. Because one day the source of money will dry up and the crisis will spread to the entire economy,” he added.