Islami Bank borrows Tk 1,000cr from Sonali breaching rules

Cash-strapped Islami Bank borrowed Tk 1,000 crore from the state-run Sonali Bank offering interest, in violation of the Bangladesh Bank guidelines for Shariah-based banking.

Shariah-based banks cannot receive or pay interest at all levels.

Islami Bank borrowed the amount for 14 days by offering 10.5 percent interest, as per the minutes of Sonali Bank's 851th board meeting held on December 26 last year.

The approval for the extraordinary liquidity support, known as 'call & short notice deposit', was given at the board meeting and the sum was disbursed to Islami the following day.

Islami is yet to repay the full amount even though the tenure of the liquidity support has expired, The Daily Star has learnt from Sonali Bank officials informed with the proceedings. They spoke on the condition of anonymity due to the sensitivity of the matter.

Of the amount, Sonali provided Tk 621 crore beyond its internal limits and the state-run bank informed the issue to the central bank.

Contacted, BB Spokesman Md Mezbaul Haque said he was not aware of the arrangement between the two banks. "I can only comment after knowing the issue."

Md Afzal Karim, managing director and chief executive officer of Sonali Bank, could not be reached for comment despite multiple attempts over the phone and in person.

Islami Bank's MD Mohammed Monirul Moula could not be reached for comment despite repeated attempts.

In its meeting minutes, Sonali said it extended the liquidity support despite having no counterparty credit limit for Islami Bank considering the Shariah-based bank's financial health, including satisfactory credit rating and tolerable classified loan rate.

A counterparty credit limit is a perimeter imposed by a bank or financial institution to cap its maximum possible exposure to a specified counterparty.

The liquidity support was given in the interest of the country's overall banking system as the Shariah-based bank was facing a temporary liquidity crisis, the meeting minutes said.

Islami, which accounts for the highest volume of deposits and loans among the 61 scheduled lenders in Bangladesh, has a deficit in its current account with the central bank for a long time.

Banks have to maintain a current account with the central bank for different clearing payment systems and they have to maintain a hefty balance in the account.

As of January 11, Islami had a Tk 3,647 crore deficit in its current account that it maintains with the BB, according to an internal document of the central bank.