Social Islami Bank Ltd (SIBL), a Shariah-compliant financial institution, was found to have concealed a staggering Tk 7,924 crore in default loans, according to a recent inspection by the Bangladesh Bank (BB).
The inspection revealed that while the bank officially reported only Tk 1,644 crore in default loans on its balance sheet at the end of 2023, the actual amount stood at Tk 9,568 crore. This significant discrepancy has raised concerns about the transparency and governance practices within SIBL, which is majority-owned by the Chattogram-based S Alam Group.
The central bank’s inspection uncovered that SIBL had only set aside Tk 153 crore as provisions against its default loans. According to standard banking regulations, the bank should have maintained provisions amounting to Tk 9,281 crore to safeguard the interests of its depositors and shareholders.
The concealment of such a large volume of bad loans has sparked industry-wide concerns and allegations. Some insiders have claimed that two top officials at the Bangladesh Bank allowed SIBL to underreport its defaulted loans, enabling the bank to present a more favorable financial position than warranted by its loan portfolio.
Zafar Alam, the Managing Director and Chief Executive Officer of SIBL, acknowledged that the Bangladesh Bank typically provides certain privileges that allow banks to report lower levels of bad loans than their actual figures.
However, Alam denied any knowledge of the specific concealment uncovered during the inspection. “The amount of our default loans has declined significantly now,” he added, though he did not provide any details to support this assertion.
Officials from the Bangladesh Bank explained that the inspection focused on SIBL’s principal branch and several major branches. The report, based on a review of documents from 10 branches, provided a detailed account of the discrepancies between the reported and actual default loans.
Bangladesh Bank’s Executive Director and spokesperson, Md Mezbaul Haque, admitted that some banks had been granted deferral facilities, which are not typically disclosed to the public.
The revelation of concealed bad loans has exacerbated tensions within SIBL, particularly among employees who have voiced dissatisfaction with the current management. Just a day before the concealment was brought to light, a group of SIBL employees staged a protest in front of the National Press Club in Dhaka, demanding the dissolution of the bank’s board of directors.
These employees, many of whom were appointed before the S Alam Group took control of SIBL in 2017, accused the group of having taken over the bank through coercive means.
