In a decisive effort to salvage Islami Bank Bangladesh PLC, Bangladesh Bank has taken full control of the embattled private-sector lender, which has seen Tk9,000 crore flow out within ten working days amid panic.
The money market regulator on Sunday injected Tk2,500 crore into the country’s largest Shariah-based bank, just four days after it sought Tk10,000 crore in special liquidity support to cope with mounting depositor withdrawals.
Hours later, the central bank dissolved Islami Bank’s board of directors, including Chairman Md Khurshid Alam.
In a notification on Sunday night, Bangladesh Bank said it had cancelled the appointments of all directors in the interest of the bank, its depositors and the public. The central bank also appointed its Executive Director Mohammad Zahir Hussain to exercise all powers and responsibilities previously vested in the board.
Bangladesh Bank Assistant Spokesperson Mohammad Shahriar Siddiqui confirmed the development.
The move marks the most far-reaching regulatory intervention at Islami Bank since the political transition of August 2024 and underscores growing concern within the central bank over the rapid erosion of depositor confidence.
While Bangladesh Bank continues to insist that Islami Bank remains stable and that depositors have nothing to fear, it has now appointed an observer, injected emergency liquidity, held crisis talks with management and removed the entire board as it seeks to contain the fallout.
According to figures provided by bank officials, more than Tk6,000 crore left Islami Bank between 1 and 9 June. A further Tk900 crore was withdrawn on 10 June, while net withdrawals reached around Tk1,200 crore each on Thursday and Sunday, in a sign of accelerating withdrawals.
Based on these figures, cumulative net outflows have approached Tk9,300 crore.
The withdrawals accelerated after a contentious leadership change at the bank.
On 24 May, the last working day before Eid-ul-Adha, Islami Bank Chairman M Zubaidur Rahman resigned. Later that night, Bangladesh Bank appointed former deputy governor Md Khurshid Alam as the bank’s new chairman. The board subsequently accepted the resignation of Managing Director Md Omar Faruk Khan.
The leadership changes soon triggered a public confrontation that extended far beyond the bank’s boardroom.
The Jamaat-e-Islami-backed Islami Bank Conscious Customers Forum launched demonstrations demanding the removal of the new chairman and reinstatement of Khan. The protests continued at the bank’s headquarters and branches across the country, coinciding with growing depositor anxiety and accelerating withdrawals.
Yet economists warned from the outset that the risks extended far beyond a dispute over individual appointments.
Zahid Hussain, former lead economist at the World Bank’s Dhaka office, warned that dragging political conflict into a major financial institution could destabilise the wider banking sector.
“Following the political transition of 5 August 2024, the bank was on a path to recovery. Unfortunately, those hard-won achievements are now being compromised,” he told TIMES last week.
Ashikur Rahman, principal economist at the Policy Research Institute, issued a similar warning.
“The recent unfortunate developments at Islami Bank are likely to undermine depositor confidence. Meanwhile, the progress the bank had made in improving its governance could unravel,” he said.
Their warnings now appear increasingly prescient.
Following the fall of the Awami League government in August 2024, Islami Bank became one of the most closely watched tests of whether Bangladesh could rehabilitate a lender damaged by years of political influence, governance failures and controversial lending practices. Deposits had started returning, customer confidence was gradually improving, and the central bank had managed to recover part of the liquidity support previously extended to the bank.
That progress, however, rested on fragile foundations.
For years, Islami Bank had been at the centre of one of the country’s most contentious banking stories. Control of the bank shifted from interests linked to Jamaat-e-Islami to the S Alam Group, which subsequently became one of the most influential and controversial corporate groups in the banking sector.
Years of concentrated lending, governance failures and alleged financial irregularities during the S Alam era left the institution with a weakened balance sheet and a large stock of problematic loans. Nearly half of its loan portfolio is now non-performing, according to officials familiar with the bank’s financial condition.
Those inherited weaknesses made the bank particularly vulnerable to a fresh shock.
The current crisis therefore reflects a chain of events stretching across multiple administrations and competing centres of influence. The S Alam era left deep structural vulnerabilities. The latest leadership changes created uncertainty. Street mobilisation amplified depositor anxiety. Regulators, meanwhile, appear to have underestimated how quickly trust could deteriorate at a bank whose stabilisation remained incomplete.
That chain of accountability now leads back to the government and Bangladesh Bank, which must manage the consequences.
Regulators argue that the appointment of a new chairman was necessary because a systemic bank could not be left without the minimum number of directors required under banking regulations.
Governor Md Mostaqur Rahman has sought to reassure customers.
Speaking at the post-budget press conference on Friday, he said depositors would face no difficulties in accessing their funds and pledged further support if required.
“Depositors will face no difficulties. They will be able to withdraw their money whenever they want,” the governor said.
He also disclosed that Islami Bank’s advance-deposit ratio had risen to 97 per cent from 93 per cent in July 2024, significantly above the regulatory ceiling of 92 per cent, highlighting growing liquidity pressure.
By Sunday, those assurances had been followed by action.
Emergency liquidity support was released. Senior management was summoned to Bangladesh Bank headquarters for a meeting that lasted about two hours. Acting Managing Director Altaf Hossain informed the governor that net withdrawals had averaged around Tk 1,200 crore per day over the previous two days and acknowledged pressure on large-value interbank transactions, including RTGS payments.
Hours after the meeting, the central bank moved decisively by dissolving the board and transferring its powers to one of its own executive directors.
When contacted by TIMES, Islami Bank observer and Bangladesh Bank Executive Director Mohammad Ashraful Alam declined to discuss what transpired during the talks. Bangladesh Bank spokesperson Arief Hossain Khan said the governor had instructed him not to comment on the discussions.
The implications extend far beyond a single institution.
Islami Bank controls roughly 8.7 per cent of Bangladesh’s banking assets, making it one of the country’s largest lenders. Any prolonged loss of trust could have repercussions across a banking system already burdened by record non-performing loans, weak capital positions and historically low private-sector credit growth.
Association of Bankers, Bangladesh Chairman Mashrur Arefin recently warned that the situation at Islami Bank was already creating negative effects across the wider banking industry and called for a swift resolution through dialogue.
That warning comes at a time when the government itself has acknowledged the depth of the sector’s problems. According to the budget speech for fiscal year 2026–27, non-performing loans stood at Tk 644,000 crore, equivalent to 35.73 per cent of total outstanding loans.
The crisis at Islami Bank has now become more than a dispute over leadership, governance or competing political interests.
It has become the first major test of the government’s promise to reform the banking sector and restore confidence in institutions weakened by years of political influence and financial misconduct.
