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Showing posts with label Bangladesh Bank Regulations. Show all posts
Showing posts with label Bangladesh Bank Regulations. Show all posts

Friday, July 4, 2025

Forensic Files: Probing the Network of Defaulting Elites Ravaging Bangladesh's Shariah Banks

 


The integrity of Bangladesh's Islamic banking sector hangs precariously, its promise of ethical, interest-free finance undermined by a deepening crisis of non-performing loans (NPLs) and acute liquidity shortages. This isn't merely a Shariah compliance issue; it's a fundamental failure of effective banking practices, exacerbated by the unchecked influence of powerful defaulters who have exploited these institutions.

At the heart of the crisis lies a systemic issue of massive loan defaults, often linked to influential groups like the S Alam Group, whose alleged irregularities have ballooned NPLs at key Islamic banks such as Islami Bank Bangladesh. This concentration of risk, coupled with questionable lending practices, has shattered balance sheets and eroded public confidence, triggering significant deposit withdrawals and a severe cash crunch across the sector. Several Islamic banks now face alarming equity deficits, with some seeing default rates reportedly soaring to extraordinary levels.



Rescuing these vital financial institutions demands a multi-pronged strategy rooted in sound banking principles and rigorous oversight:

Aggressive NPL Recovery and Resolution: The central bank and individual banks must adopt a far more proactive stance on loan recovery. This includes swift legal action against willful defaulters, establishing specialized asset management companies (AMCs) to acquire and resolve bad debts, and implementing strict, time-bound restructuring plans for viable defaulters, with clear penalties for non-compliance. Loopholes allowing politically connected individuals to evade repayment must be sealed.

Strengthening Corporate Governance and Accountability: The independence and oversight capacity of bank boards, especially Shariah Supervisory Boards, must be drastically enhanced. This means appointing truly independent directors with financial expertise, ensuring strict adherence to internal controls, and fostering a culture of zero tolerance for corruption and undue influence. Accountability must extend to senior management for any failures in risk management or ethical conduct.

Prudent Lending Practices and Risk Management: Banks must re-evaluate their credit assessment methodologies, moving away from concentrated lending to politically connected entities. Emphasis should be placed on diversified portfolios, robust collateral valuation, and real-time loan monitoring. The Bangladesh Bank must enforce stricter prudential regulations, including higher capital adequacy ratios for banks with excessive NPLs and tighter provisioning requirements.

Enhancing Regulatory Oversight and Intervention: The central bank needs stronger enforcement powers and a more agile framework for early detection and decisive intervention in struggling banks. This could involve mandatory recapitalization plans, forced mergers of weak institutions with stronger ones, or even temporary nationalization to protect depositors' interests and prevent systemic contagion. Developing a liquid, Shariah-compliant interbank money market will also be crucial for managing liquidity more effectively.

 


The current predicament is a stark warning that Shariah principles alone cannot safeguard financial institutions against poor governance and unchecked risk. Only through decisive, transparent, and robust banking reforms can Bangladesh's Islamic finance sector reclaim its integrity and ensure its sustainable contribution to the nation's economy.

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