Despite concerns over the future of Sammilito Islami Bank, formed through the merger of five financially weak Shariah-based banks, deposit withdrawal pressure has remained much lower than expected since it began operations.

Customers had long faced difficulties in withdrawing their deposits amid liquidity shortages and the weak financial condition of the five banks. This had raised concerns that depositors might rush to withdraw their money once the newly merged bank started operations.

However, the situation has so far been different. Customers are withdrawing less than half of the funds the bank has been preparing to disburse each day. At the same time, many customers are making fresh deposits, bringing some relief to Bangladesh Bank and other stakeholders.

Bangladesh Bank spokesperson and Executive Director Arif Hossain Khan said that restoring depositors’ confidence had been the biggest challenge for the newly formed bank.

“Before the merger, the financial weakness and liquidity crisis of the banks concerned had been criticised for a long time. In particular, customers’ difficulties in getting their deposits back had created a negative perception among the public,” he said.

“Bangladesh Bank provided Tk5,000 crore to Sammilito Islami Bank at once. We focused on ensuring funds and proper management so that the bank would not face a crisis after starting operations,” Arif said.

The five banks merged to form Sammilito Islami Bank are EXIM Bank, Social Islami Bank, First Security Islami Bank, Global Islami Bank and Union Bank.

EXIM Bank was controlled by Nazrul Islam Mazumder, a businessman considered close to ousted prime minister Sheikh Hasina, while the other four banks were controlled by S Alam Group owner Saiful Alam.

Against this backdrop, the interim government formed Sammilito Islami Bank in December last year by merging the five Shariah-based banks. The new bank was given paid-up capital of Tk35,000 crore, of which the government provided Tk20,000 crore. The remaining Tk15,000 crore was to be allocated to depositors as shares, according to Bangladesh Bank.

Following the merger, a decision was taken to pay customers up to Tk2 lakh from the deposit insurance fund. Bangladesh Bank also announced a scheme for returning deposits in full.

According to bank sources, 18,046 customers applied on 1 September to withdraw a total of Tk1,325 crore. The bank prepared to return the money on 7 September, but only 8,125 customers withdrew Tk319 crore on the first day.

Similarly, 19,613 customers applied on 2 September to withdraw Tk1,016 crore. On 8 September, only 7,234 customers withdrew Tk340 crore.

On 9 September, 10,697 customers withdrew Tk381 crore against applications from 21,086 depositors seeking Tk923 crore.

On the latest withdrawal day, 9,041 customers withdrew Tk391 crore against a demand for Tk657 crore from 15,476 applicants.

Overall, 124,877 customers applied between 1 and 10 September to withdraw Tk5,511 crore. But only 35,907 customers have so far withdrawn Tk1,431 crore, leaving around three-fourths of the requested amount untouched.

Sammilito Islami Bank Managing Director Md Abedur Rahman Sikder views the large number of customers who applied but did not withdraw their money as a sign of renewed confidence in the bank.

“We expected many more customers to apply for withdrawals, but the number was lower than anticipated. A large portion of those who applied are also not withdrawing their money,” he said.

The bank received Tk141 crore in fresh deposits on 7 September, followed by Tk195 crore on 8 September. Another Tk244 crore and Tk314 crore were deposited on 9 and 10 September respectively.

Thus, the bank received Tk894 crore in fresh deposits in just four days after beginning the refund process.

Managing Director Abedur Rahman said the bank would launch a model branch under the Sammilito Islami Bank name this month, where all banking activities would be conducted.

“Integrating the core banking systems of the five banks and redesigning them will take time. A new SWIFT code will also be required. Initially, restoring customers’ confidence was our main challenge. We are now focusing on other issues, including restructuring the workforce and branches,” he said.

Meanwhile, Association of Bankers, Bangladesh (ABB) Chairman Masrur Arefin described the low withdrawal rate as an encouraging sign for the banking sector.

“The fact that the withdrawal rate has remained so low even after customers were given the opportunity to withdraw money from Sammilito Islami Bank is encouraging,” he said.

He said the development showed that public confidence in the banking system had not been completely eroded despite the sector’s prolonged problems.

Dr Fahmida Khatun, distinguished fellow of the Centre for Policy Dialogue (CPD) and a member of the Bangladesh Bank board, said some visible measures taken to reform the banking sector were helping restore confidence.

“Our banking sector has gone through a situation where things could hardly have been worse. Despite the major uncertainty created by various problems, customers are still placing their trust in the banking system because of several government measures. This is a very positive sign,” she told Bonik Barta.

However, she stressed that the government must ensure that the newly formed bank operates properly, maintains credibility and completes the restructuring process effectively.

At least a dozen other banks are also facing various problems apart from the five merged banks. The condition of state-owned and specialised banks is even more fragile, and the government will have to take major decisions regarding these institutions as well, she said.

Source: Bonik Barta