Sonali Bank struggles to recover Tk1,000cr short loans from Islami Bank, National Bank

Infographic: TBS

Sonali Bank is grappling with significant repayment issues involving banks controlled by the S Alam Group which is currently under scrutiny for loan fraud.

Islami Bank Bangladesh, controlled by the S Alam Group, borrowed Tk1,000 crore from Sonali Bank at an 11.5% interest rate for a 14-day short-notice deposit to address a cash crisis. Now, after 248 days, Tk870 crore remains unpaid.

The loan has been overdue 16 times, and Sonali Bank has been forced to renew it every 14 days, with Islami Bank only paying interest and a small portion of the principal each time. The most recent renewal was granted on 29 July.

Along with the short-notice deposit investment, Sonali Bank has a total of Tk1,070 crore invested in Islami Bank, including fund placement investments.

Similarly, National Bank, also controlled by the S Alam Group, has not repaid Tk130 crore borrowed from Sonali Bank.

Sonali had to deny Tk1,000 cr to Social Islami Bank

Due to these repayment issues, Sonali Bank has denied a Tk1,000 crore short-notice deposit proposal from another S Alam Group bank, Social Islami Bank. The bank's board has decided that this loan will not be granted without a guarantee from another acceptable bank.

Minutes from a Sonali Bank board meeting on 9 July stated, "The board observed that investments in the fund placement sector with various banks and financial institutions are not being returned with interest. In almost all cases, only interest or a minimal amount of principal is collected at the end of the investment term, and renewals are approved.

"The board also noted that Tk1,000 crore invested in the short notice deposit sector for Islamic Bank Bangladesh PLC last year was not returned within the promised time. The investment has been repeatedly renewed, with only interest and minimal principal paid."

The Sonali Bank board said, "Given the context of Islamic banks, the board considers investing in the fund placement sector without a guarantee from a reliable bank to be risky. Therefore, the board has rejected Social Islami Bank PLC's proposal."

Bank management mum to press

Calls to Managing Director Mohammad Monirul Moula for comments went unanswered while Acting CFO Mohammad Farid Uddin declined to make any statement.

Later, when contacted, the bank's public relations officer said that only the managing director is authorised to make statements according to the board's decision.

"Liquidity issue"

A relevant officer from Sonali Bank told TBS, "The bank has informed us that it cannot return the investment funds due to liquidity issues. We hope Islami Bank will survive. If it does, Sonali Bank will eventually recover the invested funds."

Islami Bank, once a leading player in the sector, has collapsed due to S Alam Group's aggressive borrowing. The group has borrowed Tk75,000 crore from the bank in various forms. As a result, Islami Bank is taking short-term, high-interest loans from the Bangladesh Bank, Sonali Bank, and other banks to pay customer deposits.

Repeated failures to repay Sonali

Board meeting minutes from Sonali Bank on 9 July and 29 July revealed that Islami Bank has not repaid the principal on its short-term loans. Islami Bank has repeatedly requested renewals after paying only interest and a small part of the principal.

Despite Sonali Bank's repeated demands for full repayment, the principal remains unpaid, leading to continued renewals. On 9 July, Sonali Bank renewed three such loans from Islami Bank.

At the end of last year, Islami Bank took a Tk1,000 crore loan from Sonali Bank for 14 days. After several renewals, the outstanding principal was Tk890 crore by 13 June. Islami Bank then extended the loan for another 14 days, until 26 June.

When this period ended, Islami Bank paid Tk10 crore of the principal and some interest and requested to renew the remaining Tk880 crore. Sonali Bank agreed and extended the loan until 10 July.

After this period, Islami Bank repaid Tk3.93 crore in interest and Tk10 crore of the principal, then requested to renew the remaining Tk870 crore. Sonali Bank extended the loan again until 24 July. However, Islami Bank has not made any payments after this extension.

Similarly, Sonali Bank's Tk200 crore investment in Islami Bank's fund placement sector was due on 13 June. As Islami Bank did not repay, Sonali Bank extended the term by 91 days, until 11 September.

National Bank, controlled by the S Alam Group, failed to repay the Tk135 crore fund placement investment from Sonali Bank when its term ended. The bank paid Tk7.94 crore in interest and Tk5 crore in partial principal but requested a renewal for the remaining Tk130 crore. As a result, Sonali Bank had to extend the loan for 182 days.

On 9 July, Sonali Bank's board rejected Social Islami Bank's request for Tk1,000 crore in fund placement.