Bangladesh Bank has provided total $1.1 billion equivalent in financial support to Islami Bank Bangladesh Limited since January based on a massively fraudulent dollar purchase quotation.
This Shariah-based bank, controlled at the time by the controversial S Alam Group, has been at the centre of a scandal involving the central bank鈥檚 questionable methods to sustain its operations.
The S Alam group, under staunch support from the Awami League government, took over Islami Bank with the backing of a state agency, and has allegedly withdrawn around Tk 73,000 crore from the bank under various anonymous names and through illegal mechanisms.
Initially, Bangladesh Bank injected large amounts of money into Islami Bank by printing new currency, a move that plunged the bank鈥檚 current account with the central bank into a significant negative.
As criticism mounted from various corners, Bangladesh Bank was forced to halt this unsustainable practice and began searching for alternative methods to support the struggling bank.
The central bank usually purchases dollars from commercial banks and pays equivalent money to the banks after receiving the dollars.
According to Bangladesh Bank officials, the central bank鈥檚 dubious support began on January 18, when it provided Islami Bank with $200 million, followed by another $300 million in March, both in local currency, based on fake dollar purchase reports. These amounts were eventually adjusted, but the pattern of manipulation continued.
The most significant and final instance occurred on July 3, when Bangladesh Bank falsely reported a $550 million purchase from Islami Bank, even though no actual dollars were transferred. In this fabricated transaction, Islami Bank received Tk 6,490 crore at a rate of Tk 118 per dollar, the officials said.聽
Despite repeated demands from the central bank鈥檚 relevant department, Islami Bank only returned $100 million, leaving $450 million unpaid.
Additionally, the bank did not return the funds it received from this fraudulent transaction.
The situation took a dramatic turn on August 11, following the sudden downfall of the Awami League-led government amid a student-led mass movement.
On that day, Bangladesh Bank hastily reclaimed the remaining $450 million from Islami Bank, leading to a significant deficit in the bank鈥檚 current account.
Earlier, the central bank knowingly incurred a loss of Tk 55 crore by purchasing dollars at a higher rate than it sold to Islami Bank.
According to a central bank inspection report, on May 9, Islami Bank bought $82 million from Bangladesh Bank in two transactions at a rate of Tk 110 per dollar.
Then on the same day, the central bank repurchased $85 million from Islami Bank at Tk 116.46 per dollar, causing it a loss of Tk 54.91 crore.
To cover up these irregularities, the transactions, which took place on May 9, were officially recorded as having occurred on May 8.
This review underscored the severity of financial mismanagement and exposed the deep-rooted collusion between the central bank and a private institution wielding enormous power through political connections.
Despite having no money in their current accounts, the five banks of S Alam, including Islami Bank, were conducting transactions, surviving only with the crucial support or lifeline provided by the central bank, financial experts said.
Bangladesh Bank data further show that these five banks under S Alam grip collectively had a negative balance of nearly Tk 14,000 crore in their current accounts on January 18, which the central bank provided to keep them afloat.
As of January 18, the negative balance in the current account of First Security Islami Bank was Tk 7,400 crore, Islami Bank Bangladesh Tk 3,500 crore, Social Islami Bank Tk 1,900 crore, Union Bank Tk 1,100 crore, and Global Islami Bank Tk 70 crore.
Despite struggling with a serious liquidity crisis, these banks did not refrain from sanctioning loans to clients, central bank officials said.