Social Islami Bank hides Tk7,936cr toxic loans with cenbank’s help: Confidential document

• The defaulted loans at the end of December 2023 amounted to Tk9,568 crore
• But Social Islami Bank reported only Tk1,644 crore to the central bank
• Inspection team discovered a shortfall of Tk8,127 crore in provision at the end of December 2023
• But following the advice of a senior central bank official, only Tk64 crore was reported
• Tk8,000 crore of irregularities was found, but only Tk64 crore were shown in the report

The Bangladesh Bank had allowed the Sharia-based Social Islami Bank, owned by S Alam Group, to hide Tk7,936 crore in defaulted loans, according to a confidential report from the central bank.

According to the inspection report, the defaulted loans at the end of December 2023 amounted to Tk9,568 crore, but Social Islami Bank reported only Tk1,644 crore to the money market regulator.

Additionally, the inspection team discovered a shortfall of Tk8,127 crore in provision at the end of December 2023. However, following the advice of a senior central bank official, only Tk64 crore was reported. As a result, the bank’s provision shortfall was understated by Tk8,063 crore.

The inspection team identified discrepancies in financial reporting by conducting on-site visits to five main branches, off-site reviews of 10 branches, and inspections of seven branches outside Dhaka as of 31 December of the outgoing year.

An official from the inspection team says after reviewing Social Islami Bank, irregularities amounting to Tk8,000 crore were downplayed to just Tk64 crore in the report.

He said, “Even the additional director, director, and executive director of our department did not agree with these irregularities. However, our supervising director general pressured us to submit such a report.”

“The top official of the central bank instructed our inspection team to prepare the report in a way that would allow for a 10% dividend distribution,” he added.

According to the inspection report, out of the total loans disbursed by Social Islami Bank, Tk9,242 crore were classifiable loans. Of this amount, Tk7,419 crore requires provisioning. However, the bank reported a provision of only Tk1,092 crore, resulting in a shortfall of Tk6,326 crore as per the inspection team’s findings.

The inspection team also identified a required provision of Tk1,708 crore against investments stuck due to court orders, but the bank reported only Tk40.97 crore, leaving a provision deficit of Tk1,667 crore.

Furthermore, the required provision against investments and other assets from the Offshore Banking Unit was Tk154 crore, but the bank’s report indicated a provision requirement of only Tk20 crore in these two sectors.

Despite the inspection team uncovering significant non-performing loans and provisioning shortfalls, the final report reflected only minimal issues.

The central bank concealed the true financial state of Social Islami Bank, later reporting that the bank’s total provisioning requirement was Tk1,370 crore, of which the bank had met Tk1,306 crore, leaving only a Tk64 crore shortfall.

The central bank’s report noted that the banking sector was facing challenges due to a lack of sufficient foreign exchange for imports, efforts to protect the financial reputation of banks, the need to reduce LC margin costs, and global abnormal inflation.

Additionally, maintaining the banking category intact is closely related to international ratings. The report added that such decisions were made to establish a strong financial foundation for the bank’s reputation and future.

However, the inspection report revealed that Social Islami Bank had Tk9,371 crore in defaulted loans. It recommended that 30% of these defaulted loans should be provisioned by June, another 30% by August, and the remaining 40% by December 2024.

The central bank’s three-monthly classified loan and provisioning report showed that the bank’s total disbursed loans at the end of December 2023 amounted to Tk35,878 crore, with defaulted loans reported at Tk1,644 crore. This report did not indicate any shortfall in provision.

Shareholders demand S Alam Group’s exit from SIBL

Shareholders of Social Islami Bank Limited (SIBL) formed a human chain demanding the bank be freed from S Alam Group’s control.

At a press conference following the protest in front of the National Press Club on Sunday, they alleged that S Alam Group Chairman Saiful Alam Masud and his associates have syphoned off thousands of crores of depositors’ money, using both their own and others’ names.

They claimed that this has put not just SIBL, but the entire banking sector, at risk, with ordinary depositors now struggling to withdraw their funds.

The human chain and press conference were attended by former bank chairman Rezaul Haque, former directors Anisul Haque, Asaduzzaman, Sultan Mahmud Chowdhury, Abdur Rahman, and Abul Bashar Bhuiyan, along with other sponsor shareholders.

It was reported that in 2017, S Alam Group, backed by the then-ruling Awami League, forcibly took control of SIBL.

The current chairman, Belal Ahmed, is Saiful Alam Masud’s son-in-law.

During the ownership change, several original sponsors and directors were unlawfully ousted.

Since then, large sums of money have allegedly been withdrawn under various names, and preferential hiring practices have favoured residents of Patiya, Chattogram, leading to a financial crisis within the bank.