Why S Alam took so much interest in Shariah-based banks

Illustration: TBS

In Bangladesh, 10 fully-fledged Islamic banks operate within a banking industry dominated by conventional lenders. However, what's particularly intriguing is the influence of Saiful Alam Masud, chairman of S Alam Group, over six of these banks.

While Islamic banks make up only 16% of the country's total banking sector, they punch well above their weight.

According to the Bangladesh Bank's latest financial stability report, by the end of March 2024, these banks held a 26.33% share of deposits and accounted for 28.24% of total investments in the banking industry.

In addition, these 10 Islamic banks processed over 37% of the country's remittances during the January-March period of the current fiscal year.

Among them, Islami Bank Bangladesh, which has been fully controlled by S Alam Group for the past seven and a half years, stands out. It alone manages more than one-third of the Islamic banks' deposits, loans, and remittances.

When combined with Al-Arafah Islami Bank, First Security Islami Bank, Social Islami Bank, Global Islami Bank, and Union Bank – the conglomerate's stakes in Bangladesh's Islamic banking industry exceed two-thirds.

For example, as of the end of March this year, the total deposits in the Islamic banking system amounted to Tk439,465 crore. Of this, over 70% were held by six banks either fully or partially controlled by S Alam.

Similarly, these six banks accounted for over 72% of all investments (lending) made by Islamic banks in the country.

S Alam's journey in Shariah banking began in the early 2000s when he took full control of the First Security Islami Bank and acquired stakes in Al-Arafah Islami Bank.

His influence expanded further in 2013 when he secured licences for NRB Global Bank and Union Bank as conventional banks. 

Using his considerable influence, Masud later converted these banks into Islamic ones, even when the Bangladesh Bank was strict about allowing new Shariah-based banks. 

His foothold in the industry was solidified in 2017 when he took over Islami Bank Bangladesh and Social Islami Bank Limited (SIBL).

But what drives Saiful Alam Masud's deep interest in Islamic banking? Does his passion stem from a personal adherence to Shariah principles?

The answers lie in the unique advantages Islamic banking offers in a predominantly Muslim country like Bangladesh. 

Many people prefer Shariah-compliant banks as they wish to avoid interest, which is prohibited in Islam. Hence, these banks attract a large number of depositors who seek to adhere to religious principles.

Insiders in the Islamic banking industry reveal that, except for a few branches in Dhaka and Chattogram, most branches of S Alam-controlled banks are directed to focus exclusively on collecting deposits, with no loan disbursements. 

This strategy aligns with a crucial advantage Islamic banks have over conventional ones: while conventional banks can lend up to 87% of their deposits, Islamic banks are permitted to lend up to 92%. 

This 5% difference means that for every Tk100 in deposits, an Islamic bank can invest an additional Tk5 compared to its conventional counterparts.

IBBL's data supports this observation. According to its annual report, the bank's investment-deposit ratio (IDR) surged to 91.90% in 2023, nearly reaching the regulatory ceiling of 92%. 

Before S Alam Group took over in 2017, the bank's IDR was consistently below 90%—at 86.43% in 2016, 83.59% in 2015, and 79.88% in 2014.

However, the central bank's latest financial stability report presents an even more concerning picture for Islamic banks in the country. 

It revealed that the average IDR for 10 full-fledged Islamic banks (six controlled by S Alam) was 99%, indicating that Tk99 was invested for every Tk100 deposited, significantly exceeding the 92% regulatory ceiling.

"This higher lending capacity, combined with the religious appeal of Shariah-compliant banking, has fuelled S Alam's deep involvement in the sector," said a senior official of IBBL.

S Alam and his family's stakes in these banks:

Saiful Alam Masud, along with his family and associated firms, holds nearly 28% of the shares in First Security Bank, where he serves as chairman and his wife, Farzana Parveen, is a director. By acquiring nearly 30% of the shares in Islami Bank Bangladesh in 2016, Masud gained full control of the bank in January 2017. He later appointed his son, Ahsanul Alam, as chairman, with his daughter, Maimuna Khanam, and son-in-law, Belal Ahmed, serving as directors.

S Alam also owns over one-fifth of the shares in Social Islami Bank, which he acquired in 2017. Also, he and his family control nearly 30% of Global Islami Bank and around 70% of Union Bank, along with 5% of the shares in Al-Arafah Islami Bank. Masud's siblings and other relatives also hold positions on the boards of these banks.

However, according to banking laws, no family is permitted to own more than 10% of the shares in a bank. Despite this, Bangladesh Bank has failed to enforce these regulations against the S Alam Group and its family members.

How S Alam turned these banks into cash cows:

According to a recent report by The Business Standard, S Alam Group and its relatives withdrew over Tk45,000 crore from Islami Bank Bangladesh alone, with some reports suggesting the figure could be as high as Tk75,000 crore. Masud secured these loans in the name of S Alam Group, his relatives, and paper-based companies. The 2023 annual report of Islami Bank Bangladesh revealed that four companies owned by the group hold nearly Tk15,000 crore in loans from the bank.

Banking industry insiders estimate that S Alam Group's total loans across various banks amount to at least Tk125,000 crore, with over Tk20,000 crore drawn from First Security Islami Bank where Masud has full control for over two decades.