Minimum 2% shareholding for board membership a reason behind banking sector ills

Referring to the legal provision requiring a 2 percent shareholding in a commercial bank to become a director, Abdul Mannan,  chairman of First Security Islami Bank (FSIB), said this has driven away seasoned banking leadership from boardrooms and allowed infamous individuals like S Alam into banking leadership roles.

He compared the "black law" to the 213-years-old Permanent Settlement Act during the British era, allowing permanent land ownership by zamindars only to facilitate colonialism.    

"This is one of the key reasons behind the current crisis in the banking sector," Mannan told The Daily Star in a recent interview. He blamed the past government for carrying out the change to the Bank Company Act to mandate the shareholding provision.  

Mannan, former managing director of Islami Bank Bangladesh, was forced to resign from his post after being taken hostage at gunpoint by S Alam with the help of security agencies in 2017.

Subsequently, he left the country and returned home days after the fall of the Awami League government on August 5 in a mass uprising. He was then appointed to navigate the recovery of the crisis-hit Shariah-based lender.

"Returning home after seven and a half years, I find that the entire banking sector, particularly Islamic banks, are facing crushing challenges, with their reputation severely damaged," he commented.

As per the Bank Company Act, any individual aspiring to become a director of a private commercial bank must hold at least 2 percent of the total paid-up capital of that bank.

Mannan said the former Awami League government amended the Bank Company Act, 1991, in 2013 to add the provision of 2 percent shareholding.

Cashing in on this opportunity, he said a section of influential and wealthy people was allowed to penetrate the boardrooms of banks by simply acquiring 2 percent of the banks' shares.

"Mohammed Saiful Alam [widely known as S Alam] is a glaring example of the abuse of this law," he said.

Before Mannan, Mohammed Saiful Alam, owner of the Chattogram-based controversial conglomerate S Alam Group, was the chairman of First Security Islami Bank.

Mannan said, as a result of the 2013 amendment, some real banking leaders who helped establish good governance were ousted from boardrooms for not having the 2 percent share.

In contrast, people like the S Alam Group owner took control of the banks, he added. "This particular group [S Alam Group] came in and bought the majority of the shares, consequently becoming the owner of seven or eight banks."

As a result, four or five members of a family bought shares above 2 percent and took control of the entire board. And in some banks, he said, no board meetings were held for years.

BUSY WEEKENDS TO HEAL FSIB WOUNDS

On a recent Saturday afternoon in September, the headquarters of First Security Islami Bank was unusually active.

Despite the weekend, top executives, including the new chairman of the bank facing severe financial distress, were found busy.

Mannan, 72, spent the day moving between floors, supervising and interacting with employees.

"The overall situation is not so good. We are working day and night, even on weekends, to pull out the bank from the verge of financial collapse," said Mannan.

He said since assuming office as the chairman on September 2, he has made all-out efforts to motivate the bank's executives, while stepping up the loan recovery drive.

As a result, he said they have been able to recover bad loans of Tk 350 crore in the last three weeks.

"We are trying to improve the health of our bank and conducting a continuous drive for bad loan recovery. We have been working relentlessly for the sake of the depositors," he said.

Airing concerns over the bad loans, he said the entire assets of their 29 lakh depositor have been concentrated in nearly just 200 borrowers.

"It was also because of the 2 percent shareholding provision."

The deposits, which were collected from across the country through over FSIB 200 branches and 175 sub-branches, were mainly distributed to the borrowers through the Khatunganj branch in Chattogram and Gulshan and Motijheel branches in Dhaka, he said.

These three branches of the bank approved large loans.  

According to the bank's latest annual report, its total deposits are about Tk 45,000 crore. The amount of classified loans stood at nearly Tk 2,254 crore while the non-performing loans (NPLs) stood at Tk 1,400 crore.

The Bangladesh Bank has taken many initiatives to improve the bank's situation, including allowing the lender to avail of interbank liquidity support.

Mannan said that FSIB's crisis would be over soon.

"I hope there will be a big positive change in the situation soon," he said. "By October, I hope, the crisis will end. And, by November and December, we will be able to achieve positive growth."

"Our customers will not lose a single taka," he assured.