Islami Bank breaks rules in approving loans, BB finds

The newly-formed board of Islami Bank Bangladesh has approved loans to clients without following proper rules, according to the central bank.

In some instances, the board has not paid heed to objections raised by the Bangladesh Bank observer to the bank.

BB will enquire about the wrongdoings, if any, said sources at the central bank.

Most of the loans under question were approved from the bank's Chittagong region, according to BB findings. 

The board approved loans worth Tk 16.75 crore to two clients -- JN Flour Mills and its associate organisation. The approval came at an executive meeting of the bank on February 16.

The loan was disbursed from the bank's Bahaddarhat branch in Chittagong but the factory of the client is located at Laksam in Comilla. Moreover, the loan was acquired from the Khatunganj branch of Al-Arafah Islami Bank.

BB will investigate at what condition the client has agreed to transfer the loan from Khatunganj to Bahaddarhat and whether the acquisition was lawful and the money would not be diverted to unspecified sectors, according to the BB sources.

The BB observer found the board has granted grace periods to clients without following due process. In some cases, the grace period was extended even without rescheduling of loans.

In another incident, the Islami Bank board has approved loan for HBC Bricks, a client of its Companiganj branch in Comilla, without knowing the creditworthiness of the borrower.

The client has no environment clearance certificate too. The board approved the loan despite objection from the BB observer.

The Khatunganj branch of Islami Bank also acquired all non-funded liabilities of Nur Brothers Trading from the branch of Exim Bank.

The board also gave nod to a loan proposal from Islami Bank's Khatunganj branch to lend Tk 132.60 crore to Infinit CR Strips Industries. The company is a new client for the branch and the loan was given to build a steel sheet manufacturing plant. The loan proposal did not include information about the client's banking activities.

According to BB, the board approved such a large amount of loan quickly to a completely new client without carrying out any field visit to the project site.

But Islami Bank denies any wrongdoing.

“We don't favour a particular client while approving loans,” said Abdul Matin, chairman of the executive committee of the bank.

If clients fulfill all requirements they get loans, he said.

“Moreover, there is an observer from Bangladesh Bank who attends all of the meetings. We try to follow his guideline or take his objection into account before approving any loan proposal,” he said.

The new board at the country's biggest Shariah-based bank took the charge in early January following a major reshuffle in key positions, including chairman and managing director.