IBBL seeks Tk 11 billion in loans from Sonali Bank

Islami Bank has sent us a letter, but we are yet to decide on it, Sonali Bank Managing Director Afzal Karim says

Islami Bank Bangladesh Ltd, or IBBL, which is suffering from a liquidity crisis, has sought Tk 11 billion in loans from state-owned Sonali Bank.

The Sharia-based bank will get the money if Bangladesh Bank approves the loan as a guarantor.

Sonali Bank's top officials said they would provide the loan to Islami Bank, which had surplus liquidity once. However, no official decision has been taken yet.

On Tuesday, the Islami Bank sent a letter to the central bank requesting to become a guarantor for the loan.

However, Bangladesh Bank did not give the green light to this end until Wednesday.

IBBL, one of the country’s largest banks, was hit by a liquidity crisis after S Alam Group, who forcibly took control of the bank during the tenure of the ousted Awami League government, took out a huge amount of money through various irregularities. After the collapse of the government, it got worse.

The bank was marked by bad loans worth billions of taka under the conglomerate.

After the fall of the Sheikh Hasina government in the face of a mass civil uprising, the interim government assumed power and took the initiative to restructure the banking sector. Meanwhile, the board of Islami Bank has been reconstituted.

On the other hand, Bangladesh Bank Governor Ahsan H Mansur promised to stand by the crisis-hit banks, pointing to a way to overcome the liquidity crisis by lending from the interbank market without providing direct assistance.

Following the governor’s recommendation, Islami Bank sought liquidity support from Sonali Bank and sought the central bank’s intervention in this regard.

Another issue has come up in the beleaguered bank's application process. On Dec 26 last year, Islami Bank took a loan of Tk 10 billion from Sonali Bank for 14 days.

Islami Bank received the money under the liquidity facility known as ‘Call and Short Notice Deposit', in which Sonali Bank provided Tk 6.21 billion beyond the organisation’s internal credit limit and the central bank was informed about the support at that time.

However, the IBBL has not paid the money back yet.

A senior central bank official told bdnews24.com that Sonali Bank has already expressed willingness to grant the loan. They will be able to provide liquidity support to Islami Bank only after getting approval from Bangladesh Bank.

When contacted, Sonali Bank Managing Director Afzal Karim told bdnews24.com: “Islami Bank is paying interest on the Tk 10 billion it had taken earlier, and some of the principal was paid. That debt amount is being reduced."

Responding to a question over the procedure the state-run bank will follow now for the Islami Bank, he said: "No decision has been made yet in this regard. Bangladesh Bank has said that it will give a guarantee. That's a different issue. Islami Bank has sent us a letter, but we have not decided on it yet."

Central bank officials said that not only Islami Bank, but many banks have applied for the liquidity facility. However, only the Islami Bank has sent a letter seeking a guarantee under the interbank system. However, no decision has been taken yet.

A draft has been prepared on how crisis-hit banks will borrow from the interbank market with central bank guarantees.

A central bank official said the bank which will take the loan will have to obtain verbal consent from the other party beforehand. This has to be approved by the bank's board. The next phase is the application to Bangladesh Bank.

The officials stated that the borrowing bank will have to showcase a plan of how much money will be taken, how it will be paid, and what will be the interest rate. If the loan is not repaid in three months, the bank will get another nine months. Bangladesh Bank will also get a commission for providing the guarantee.