Among the troubled financial institutions are major banks and non-bank financial entities linked to the S. Alam Group. These banks have seen explosive growth in the last 15 years, often under opaque circumstances and with questionable lending practices.
A cluster of weak banks are dragging Bangladesh’s banking sector into a deepening crisis, as non-performing loans (NPLs) within Shariah-based financial institutions reach an alarming Tk 1.3 trillion. Many of these banks are linked to industrial conglomerate S. Alam Group.
Despite regulatory interventions and leadership reshuffles, the situation remains grim, raising serious concerns about the stability and future of Islamic banking in the country.
According to the latest data from Bangladesh Bank, the 10 Shariah-compliant banks now account for over 23 per cent of the total defaulted loans within the country’s financial system. This default burden, equal to Tk 1.3 lakh crore, has been compounded by years of unchecked irregularities, misappropriation of funds, and poor oversight, the Anti Corruption Commission (ACC) of Bangladesh says.
“This crisis did not emerge overnight. It is the result of over a decade of systemic abuse, weak governance, and the exploitation of Islamic banking structures,” said a senior central bank official who requested anonymity due to the sensitivity of the issue.
Among the troubled financial institutions are major banks and non-bank financial entities linked to the S. Alam Group, including Islami Bank Bangladesh Limited, First Security Islami Bank, Union Bank, and Global Islami Bank. These banks have seen explosive growth in the last 15 years, often under opaque circumstances and with questionable lending practices.
A recent court order to freeze deposits worth over Tk 8,133 crore belonging to S. Alam Group chairman Mohammed Saiful Alam and his family has further intensified scrutiny. Investigations by the Anti-Corruption Commission (ACC) suggest that S. Alam acquired control over several banks and financial institutions through front companies, allegedly siphoning off thousands of crores in loans.
Formation of Task Force
Despite these revelations, efforts by Bangladesh Bank to reverse the damage – including the dissolution of bank boards and capital injections – have met with limited success. Depositor confidence has remained low, and structural reforms have yet to take hold.
In a bid to break the impasse, central bank governor Dr Ahsan H Mansur has proposed a bold step: merging several of the weaker Islamic banks into two large, consolidated entities. The idea, although still in its formative stage, is aimed at stabilizing operations and regaining public trust.
The proposal has been met with a mix of cautious optimism and outright scepticism.
“I am in favour of mergers, but not of forcing them,” said Dr Shah Md. Ahsan Habib, a professor at the Bangladesh Institute of Bank Management (BIBM), writing for the Daily Star Newspaper. “Forcing these mergers is not advisable. The balance sheet of one bank would be merged with another, and their operations integrated. I hope they succeed, but I have my doubts.”
Mohammad Nurul Amin, chairman of Global Islami Bank, echoed similar concerns. “No forensic audits, damage assessments, or valuations have been conducted yet. There is no issue with forming two large banks. But combining two major negative narratives could result in a significantly adverse impact.”
Bangladesh Bank has confirmed the formation of a task force to evaluate the situation. It is also drafting a new “Bank Resolution Act” that will provide a legal and procedural framework for the proposed mergers and acquisitions.
“Some banks may be merged, while others could be acquired,” said Arif Hossain Khan, executive director and spokesperson of Bangladesh Bank. “The actual outcomes and the procedures involved will be detailed in the Bank Resolution Act. Once the policy framework is finalized, subsequent steps should be more straightforward.”
Not All Are Convinced
However, concerns persist about whether these measures are too little, too late. Many of the affected banks have already lost their competitive edge and face difficulties in regaining customer trust.
As a potential solution, some experts have suggested turning the merged banks into sector-specific institutions. “A bank for the textile sector or SMEs could be considered,” said Amin. “Assigning specific responsibilities, like Krishi Bank, could be effective.”
But not all are convinced.
“Our experience with specialised banking isn’t encouraging,” said Prof. Ahsan. “A narrow focus doesn’t guarantee success. BRAC Bank started as an SME-focused institution, but it took more than just a mandate to make it work.”
Sceptics also point to the entrenched political and corporate influence over some of the failing banks, particularly those linked to S. Alam. With allegations of cronyism and political protection swirling, restoring transparency and accountability remains an uphill battle.
Founded in 1985, S. Alam Group has expanded rapidly across sectors such as steel, cement, food, and finance, employing over 20,000 people. However, the group’s financial empire now stands at the center of what could be one of Bangladesh’s most significant banking crises in recent history.
As the country waits for the central bank’s task force to deliver its recommendations, the future of Islamic banking, and public trust in the financial system, hangs in the balance.
Image: Chatgpt
