How First Security Islami Bank recovers Tk350cr in bad loans in just 3 weeks

Infograph: TBS

In a remarkable turnaround, First Security Islami Bank has recovered Tk350 crore in bad loans within just three weeks till 23 September, following the appointment of a new board of directors led by Muhammad Abdul Mannan.

Mannan, who took charge as chairman on 2 September, spearheaded an intensive loan recovery drive, crediting the success to a mix of strategic actions and motivating the bank's executives.

The bank, previously controlled by the S Alam Group Chairman Saiful Alam Masud, has long struggled with non-performing loans. Under Mannan's chairmanship, however, the swift recovery has raised hopes for the bank's future stability.

"I am optimistic about the bank's recovery," Mannan told TBS, hinting at more efforts to follow in securing the bank's financial health.

He has vowed to maintain pressure on loan defaulters, with a new strategy to ensure repayment.

"If necessary, our executives will take position in front of the defaulters' homes, making it known to their neighbours, relatives, and friends that these individuals do not repay their loans while leading lavish lifestyles both at home and abroad," said Mannan, who previously served as the managing director of Islami Bank Bangladesh.

The new chairman's efforts are not just focused on recovering bad loans. First Security Islami Bank is also attracting fresh deposits and new clients.

Mannan said 2,700 Cash Waqf deposit accounts were opened in just two days – a product that was previously unfamiliar to the bank's own staff.

Cash Waqf, a Shariah-compliant deposit, is a form of perpetual donation intended to fund social welfare.

Profits generated from these deposits, Mannan explained, are used for initiatives such as providing stipends to meritorious students, and ensuring a continuous flow of income for charitable causes.

First Security Islami Bank's new chairman has expressed deep concern over how the bank's deposits, belonging to around 20 lakh people, have been concentrated in loans to just 200 borrowers.

Most of these funds were disbursed through three branches – Khatunganj in Chattogram, and Gulshan and Motijheel in Dhaka.

Mannan pointed out that while deposits were collected from across the country through 205 branches and 175 sub-branches, the bulk of the investments went to a small group of clients in Dhaka and Chattogram. He believes this concentration has left the rural economy neglected and deprived of much-needed financial vibrancy.

According to the bank's 2023 annual report, total deposits amounted to over Tk45,000 crore, of which Tk13,503 crore came from other banks and non-bank financial institutions.

By the end of last year, 63 clients held investments exceeding 10% of the bank's capital, with loans totalling Tk11,716 crore. Seven clients surpassing 15% of the bank's total regulatory equity, alone accounted for nearly Tk6,000 crore in loans.

The report also revealed that First Security Islami Bank had classified nearly Tk2,254 crore in loans, with about Tk1,400 crore classified as bad loans, requiring 100% provisions.

However, insiders claimed the actual figures could be significantly higher, citing rescheduling and financial adjustments that may have masked the true scale of the bank's bad loans.

These revelations come amid broader changes in Bangladesh's financial sector. Following a student-led movement, an interim government led by Professor Muhammad Yunus came to power on 8 August, replacing former prime minister Sheikh Hasina.

Later, the government appointed Dr Ahsan H Mansur as governor of the Bangladesh Bank, which promptly dissolved the boards of seven problematic banks. 

Among them, First Security Islami Bank, formerly controlled by Saiful Alam Masud, chairman of the controversial S Alam Group, was identified as one of the institutions where loans were taken out through paper-based companies. Masud has stakes in at least six of these seven banks.

FSIB optimistic about recovery with short-term liquidity support

Temporary liquidity support could play a crucial role in helping banks recover from financial distress, according to FSIB Chairman Mannan, as the central bank steps in to provide guarantees for this support from other banks.

On 22 September, five crisis-hit banks, including FSIB, received a guarantee from the Bangladesh Bank to access liquidity from the interbank money market. FSIB sought Tk7,900 crore in liquidity support as part of this initiative.

"If we can secure liquidity for two to three months, we are confident that FSIB can recover and repay the loan within that period. We aim to start 2025 on a positive note," said Mannan.

However, the Bangladesh Bank has imposed nine conditions for this support, including a maximum term of one year, renewed every three months, with an interest rate set at 10.50%, in line with the existing Special Liquidity Facility (SLF) rate.

Should the crisis-hit banks fail to repay on time, the lending banks can convert the loans into forced loans with a 90-day tenure. 

Also, the central bank will have the authority to deduct funds from the defaulting banks' current accounts with the central bank to recover the loan. An extra 2% interest or profit will be applied to the SLF rate if the loans are not repaid by the deadline, as per the agreement.