BB’s new bid to ease IBBL crisis

The crisis at Islami Bank Bangladesh PLC (IBBL) has deepened further, prompting the Bangladesh Bank to dissolve its board of directors and remove the recently appointed chairman, Khurshid Alam. His appointment caused the stalemate, as his induction into the bank sparked widespread protests under the banner of the Islami Bank Customer Forum, disrupting the bank's normal activities and triggering panic withdrawals by depositors.

This has exacerbated the problem, creating a rift among the bank's customers, depositors and officials. According to estimates, no sooner had the new chairman assumed office on May 24 than depositors began withdrawing more than Tk 1,000 crore every day, causing an acute liquidity crisis.

This is why the central bank has introduced new changes to the bank's management, appointing Bangladesh Bank Executive Director Mohammad Zahir Hossain as an administrator to exercise all the powers and perform all the responsibilities of the board under Section 47(3) of the law.

However, the central bank also infused 2,500 crore in emergency liquidity support for the limping that may appear, at first glance, to be a routine stabilisation measure. Central banks worldwide often step in when financial institutions face short-term liquidity pressures to prevent operational disruptions and maintain confidence in the payment system. Yet in this case, the intervention points to a deeper and more complex structural problem than a temporary cash shortfall.

This signals a growing crisis of confidence in one of the country’s largest private banks, and by extension, in parts of the broader banking sector. The immediate objective of the support is clear: To ease withdrawal pressure and ensure that cheque settlements and day-to-day banking operations continue without interruption.

Without such intervention, normal financial activities at the bank could have faced serious setback. But the need for emergency assistance raises a more fundamental question: How did a major institution reach a point where it could not sustain routine liquidity without the central bank backing?

Banking systems are fundamentally built on people’s trust. Depositors keep their funds in banks because they believe their money is safe and accessible. When that belief weakens, even temporarily, withdrawals accelerate, placing additional strain on liquidity and potentially triggering broader instability. What is now visible in Bangladesh reflects how quickly that trust can erode under pressure. The situation surrounding Islami Bank also highlights long-standing vulnerabilities within Bangladesh’s financial sector.

Khurshed Alam’s appointment as Islami Bank’s chairman has exacerbated the problem, creating a rift among the bank's customers, depositors and officials. According to estimates, no sooner had the new chairman assumed office on May 24 than depositors began withdrawing more than Tk 1,000 crore every day, causing an acute liquidity crisis.

In certain cases, large loans were extended to influential borrowers, some of which later-on became difficult or impossible to recover. As defaults accumulated, bank balance sheets weakened, contributing to systemic stress. Although regulatory reforms were introduced over the time, practices of loan rescheduling and special restructuring arrangements often delayed the recognition of underlying asset quality problems. Between 2009 and 2024, concerns over rising non-performing loans intensified, placing additional pressure on financial institutions and raising questions about the long-term stability of parts of the banking system.

Within this broader environment, Islami Bank Bangladesh PLC has remained mostly prominent. A major shift in ownership and governance in 2017 was followed by continued debate over lending practices, risk management standards, and internal controls. Amid this environment, leadership changes at Islami Bank added to market sensitivity. The resignation of senior leadership and the appointment of a new chairman by Bangladesh Bank [central bank] were followed by public protests from stakeholder groups demanding governance reforms.

These developments contributed to heightened uncertainty and increased withdrawal pressure. As a result, the bank reportedly sought as much as BDT 10,000 crore in liquidity support, of which BDT 2,500 crore has so far been approved. But the central question is whether emergency liquidity can address the underlying problem.

Emergency liquidity support from Bangladesh Bank is necessary to prevent immediate bog down, but it is not sufficient for long-term stability. Sustainable recovery requires deeper reforms�"strengthening governance, improving transparency in financial reporting, enforcing independent audits of bank assets, and enhancing the effectiveness of regulatory oversight.

In fact, Bangladesh’s banking sector faces a challenge that extends beyond liquidity management. It is a challenge of trust. Without restoring confidence in governance and financial integrity, no level of emergency funding will be enough to ensure stability.