Lending by six banks under S Alam Group restricted

Lending by six banks linked to the controversial Chattogram-based S Alam Group is restricted by regulatory order amid allegations of the conglomerate's financial irregularities.

The banks -- also facing LC conditionalities -- are Islami Bank Bangladesh, First Security Islami Bank, Social Islami Bank, Union Bank, Global Islami Bank and Bangladesh Commerce Bank.

Bangladesh Bank (BB), the country's central bank, imposed restrictions by an order Monday -- now that there has been a regime change and change of guards in finance and banking.

As part of the dos and don'ts, the BB has set a maximum lending limit of Tk 50 million for the banks and made it mandatory for them to obtain central- bank approval for any loan exceeding that limit.

The Department of Off-Site Supervision (DOS) of the Bangladesh Bank has already sent to the banks letters ordering immediate compliance that lasts "until further notice".

Spokesperson for the BB Md Mezbaul Haque said, "We have already informed the top management of the banks about the restriction."

These six banks cannot disburse any new loan exceeding the limit and reschedule any previous loans until further notice, said Mr Haque, also an executive director of the banking regulator.

Regarding the LC (letter of credit)-related affairs, the central bank asked the banks only to allow the opening of LCs with cent-percent cash margin. It means the importers have to deposit 100 per cent of their total import payments while opening LCs.

The central bank's decision comes as many Islamic banks face severe liquidity shortages, mainly due to extensive borrowing by entities owned by S Alam Group.

It has also been learned that a quarter of the S Alam Group of business became active in diverting funds from the banking system shortly after the fall of the Sheikh Hasina-led government on 5 August in the face of a student-mass uprising.

Some Islamic banks received a high volume of cheques under pseudonyms as part of this illicit activity, prompting the central bank to impose restrictions to prevent such practices.

Initially, the BB ordered commercial banks to restrict cash withdrawals to Tk 100,000. That limit has since been revised upward to Tk 300,000.

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