BB sees no obstacle to Khurshid Alam's appointment; lawyer disagrees

Bangladesh Bank (BB) yesterday said Md Khurshid Alam, the newly appointed chairman of Islami Bank Bangladesh PLC, faces no barrier to serving as the bank’s chairman due to his wife’s loan default.

BB spokesperson Arief Hossain Khan made the remark amid criticism and controversy surrounding Alam’s appointment.

Arief, also an executive director of the BB, said that in 2016, a small enterprise obtained a Tk 1.25 crore loan from First Security Islami Bank under an SME financing scheme. One of the directors of the company is Alam’s wife. The outstanding amount has now risen to more than Tk 3 crore and become classified as defaulted.

However, since Alam has no involvement with the company, there is no obstacle to his serving as chairman, according to the BB spokesperson.

Documents seen by The Daily Star show that Alam’s wife, Afroza Akter, is a director of Agrocrop Limited and holds a 16 percent stake in the company. The company has loans totaling Tk 3.56 crore from First Security Islami Bank and Meghna Bank, of which Tk 2.79 crore has become defaulted.

Under the Bank Company Act (Amendment) 2023, a loan defaulter is not eligible to serve as a bank director. BB regulations also bar wilful defaulters from serving as directors for five years even after they are removed from the default list. However, the law does not contain any clear provision regarding a spouse’s loan default status.

Central bank officials said that if an individual is a guarantor of a spouse’s loan, that person would not be eligible to serve as a director.

On May 24, BB appointed Alam, a former deputy governor, as chairman of Islami Bank, hours after the previous chairman resigned and a day before the country entered a nearly week-long Eid holiday.

The appointment sparked discussion in the banking sector. Many alleged that Alam’s role was controversial during the tenure of the Awami League government, when S Alam, a Chattogram-based businessman, took control of several Shariah-based banks and was involved in loan irregularities.

However, Barrister Ashraful Hadi, a lawyer at the Supreme Court of Bangladesh, took a different view. He said a person seeking to become a bank director must declare that no loans taken by the person or their allied concerns from any bank or financial institution have become defaulted.

“The question is how Bangladesh Bank can approve the appointment of a person as an independent director and board chairman when his wife is a loan defaulter. If this is allowed, spouses or family members of loan defaulters can become directors of banks and financial institutions,” he said.

“Even from a moral standpoint, family members of loan defaulters should not be allowed to sit on the board of a financial institution,” he added.

As the regulator, Bangladesh Bank has a legal and moral responsibility to oversee such matters, he said.

“Moreover, if the independent director is a former employee of Bangladesh Bank, one should examine whether there is any potential conflict of interest, directly or indirectly. The ethical responsibility of Bangladesh Bank is very high.”