MD MEHEDI HASAN

In just fourteen days, Islami Bank Bangladesh PLC has moved from a stable liquidity position into a severe cash crunch, following disruption around the appointment of its new chairman by the Bangladesh Bank.

In the face of mounting withdrawal pressure, the central bank yesterday dissolved the bank’s entire board and appointed an administrator. But much of the liquidity damage had already been done.

The country’s largest private-sector bank, which had begun to recover under the interim government after years of massive loan irregularities and financial misconduct linked to the S Alam Group, is now under renewed liquidity pressure as deposit outflows accelerate.

The bank’s current account with the central bank was in a positive position until May 31. But within the past two weeks, it has moved into a deficit of about Tk 4,000 crore, show data.

A current account with the central bank is a master reserve account held by commercial banks and financial institutions. It acts as the clearing mechanism for interbank transactions and allows institutions to settle daily obligations.

When the balance falls into deficit, banks can face difficulties in fund transfers and clearing operations, which can disrupt services for customers.

Md Altaf Hossain, managing director (current charge), acknowledged the pressure. He told The Daily Star yesterday that the deficit had widened due to the bank’s reliance on liquidity support from the central bank.

Hossain said fund transfer services and other clearing operations resumed after the bank received liquidity assistance from the banking regulator.

The acting managing director also said customers are withdrawing around Tk 1,000 crore a day on average. Deposits are coming in at a similar level, but the scale of withdrawals is putting pressure on the bank.

As a result, the bank has imposed a Tk 50,000 cash withdrawal limit per customer at the branch level, he added.

However, some customers said branches in Dhaka were allowing withdrawals of only Tk 10,000 amid the ongoing pressure.

The Bangladesh Bank yesterday injected Tk 2,500 crore in special liquidity support to help the country’s largest shariah-based lender address the acute cash shortage. Bangladesh Bank Executive Director and Spokesperson Arief Hossain Khan confirmed the development to The Daily Star.