After Padma Bank, ICB Islamic Bank appears to be the next in line to be absorbed by a stronger bank under the central bank's roadmap to clean up the banking sector and bring in corporate governance.

The Shariah-based bank, which took shape from the ruins of Oriental Bank in 2008, is struggling to continue its operations on a fully-fledged basis after running into a severe liquidity crisis at the turn of the year.

At the end of 2023, it faced a capital shortfall of Tk 1,823 crore and 87 percent of its total disbursed loans (investment) of Tk 790.4 crore turned bad, according to data from the Bangladesh Bank.

So dire is the situation that the bank has no securities against which it could borrow money from other Islamic banks and the central bank and is paying its employees in phases, The Daily Star has learnt from BB officials informed with the proceedings.

The BB's Department of Off-site Supervision requested the Banking Regulation and Policy Department to take corrective measures against the bank as it is practically out of operation due to the liquidity crisis.

"It is likely to be merged with a strong bank under the central bank's Prompt Corrective Action framework soon. The bank is now a systemic risk due to its frozen deposits, capital shortfall, high defaulted loans and liquidity crisis," said one of the BB officials.

To ease the fund crisis, the lender on January 31 requested the BB provide Tk 50 crore in collateral-free liquidity support. The plea was turned down two weeks later as ICB Islamic Bank already had Tk 425 crore in liabilities with the central bank.

"The bank has no quality receivable (securities) and that is why the central bank rejected their application for liquidity support," said BB Spokesman Md. Mezbaul Haque, adding that ICB Islamic Bank's owner can also provide funds to the bank to run its operations.

Contacted, Muhammad Shafiq Bin Abdullah, managing director of ICB Islamic Bank, said: "We appealed against the central bank decision. Some banks are continuing to get the central bank liquidity support but we were turned away."

The majority of the banks are facing a liquidity crisis and it is not just ICB Islamic Bank, he said, while denying paying the employees' salaries in phases.

"Most of the issues are legacy issues, including the Tk 425 crore liabilities with the central bank," Abdullah said, adding that all banking operations including lending are going on as normal.

However, three officials of ICB Islamic Bank told The Daily Star on the condition of anonymity that the bank is struggling to pay its employees in full at the end of the month.

The bank has as many as 350 employees in its 33 branches, they said.

The deteriorating financial health though took place despite having a central bank-appointed observer in the Shariah-based bank from its onset.

Md Rajab Ali, a BB director, was dispatched to ICB Islamic Bank in 2022 and like his predecessors, he failed to bring in any positive changes.

Ali told The Daily Star that he joins the quarterly virtual meetings, where details of issues the bank is facing are not discussed.

He, however, acknowledged that the bank is facing different kinds of challenges including the liquidity crisis.

The bank has been in the losses in the last few years; in 2023, its losses stood at Tk 56.5 crore. It has failed to declare dividends for many years due to the losses.

At the end of 2022, which is the latest available data, the bank had Tk 1,212 crore as deposits, of which Tk 444 crore as frozen deposits.

Frozen deposits are deposits from Oriental Bank that were blocked by the central bank. The lender had Tk 2,000 crore as frozen deposits and has so far repaid about Tk 1,500 crore to Oriental Bank's depositors.

The bank's origins can be traced back to 1987 when it was operating under the moniker Al-Baraka Bank.

In 1994, it became a 'problematic bank' and the central bank introduced the practice of appointing an observer to errant banks to bring in discipline.

In 2004, it started operating as a scheduled commercial bank under a new name, Oriental Bank.

In June 2006, the central bank dissolved the board of directors of Oriental Bank after detecting massive irregularities. A total of 34 cases were registered in 2005 and 2006 for embezzling an estimated Tk 34 crore from Oriental Bank.

The banking regulator took full control of the bank and appointed a BB executive director as the bank's administrator to safeguard the depositor's money.

In August 2007, the BB floated a tender to sell the majority of the bank's shares. Two bidders participated in the tender, with Swiss ICB Group, which has banking business in Asia and Africa, walking away with the stake.

In 2008, the bank was renamed as ICB Islamic Bank.