Capital Flight Intensifies At Islami Bank

Anxieties over institutional leadership have prompted customers to withdraw in excess of Tk 3,500 crore from Islami Bank Bangladesh PLC within five consecutive working days. The rapid drain of deposits commenced immediately following the appointment of Md Khurshid Alam, a former deputy governor of Bangladesh Bank, as the bank’s new chairman.

Senior officials within the commercial bank confirmed that the pace of capital flight accelerated significantly once the regulatory appointment was formalised.

Quantification of Liquid Asset Outflows

According to internal administrative figures, the vast majority of the capital flight occurred during the opening four working days of the month, culminating in a sharp single-day exit of funds.

Five-Day Capital Outflow Profile

Governance Adjustments and Resulting Disruption

The regulatory background to the crisis began on 24 May, when the central bank appointed Mr Alam as chairman. He had previously been removed from his post as deputy governor of Bangladesh Bank following the civil uprising in July 2024. Although his official start date was set for 1 June, he was blocked from assuming his duties in person.

Demonstrating under the banner of the “Islami Bank Sacheton Grahok Forum,” groups of employees and customers staged protests outside the corporate headquarters to demand his immediate removal. Consequently, the inaugural board meeting could not be conducted in person and was subsequently moved online under direct instructions from the central bank.

Mr Alam’s appointment coincided precisely with the resignation of the preceding chairman, Zubaidur Rahman, who vacated his post amidst sustained protests from bank staff.

Executive Directives and Central Bank Safeguards

In an effort to stabilize public sentiment, Altaf Hossain, the Additional Managing Director and acting Managing Director of Islami Bank, acknowledged the elevated withdrawal requests but urged the public to remain calm.

“I urge customers not to panic. There is no reason to withdraw money out of fear at this moment,” Mr Hossain stated. “Any loan approval now goes through a rigorous scrutiny process. I am hopeful that Bangladesh Bank will step in to address the concerns among customers and help resolve the current situation.”

The central bank has formally placed Islami Bank under active surveillance. Mohammad Shahriar Siddiqui, Assistant Spokesperson for Bangladesh Bank, confirmed that regulators are tracking whether the withdrawn capital is being retained as cash or transferred to competing banking institutions. He emphasised that the institution currently possesses sufficient liquidity to clear its obligations.

“If Islami Bank is unable to meet liquidity needs, the central bank will provide support,” Mr Siddiqui stated, noting that the regulator had previously extended emergency liquidity lifelines to the bank during an operational crisis after 5 August 2024.

This sudden contraction follows a period of significant fiscal recovery. Following a comprehensive board restructuring after 5 August 2024, Islami Bank’s total deposit base expanded by more than Tk 22,000 crore within a single year, climbing to an aggregate of Tk 1.83 lakh crore in 2025. The loss of approximately Tk 3,500 crore in five days represents a sharp reversal of this deposit growth.

To coordinate a regulatory response, Bangladesh Bank summoned Mr Hossain to its headquarters for an emergency meeting with the central bank governor.

Industrial Action and Shareholder Grievances

Opposition to the new appointment remains resolute. At a rally outside the Islami Bank Tower in Motijheel, Nur Nabi Manik, president of the protesting platform, issued a 24-hour ultimatum for Mr Alam’s resignation.

To enforce their demands, the platform announced a nationwide, two-hour daily “pen-down” strike and sit-in programme. Furthermore, the demonstrators called for the compulsory sale of the 82% equity stake in Islami Bank allegedly acquired through fraudulent channels by the S Alam Group, proposing that the proceeds be utilised to liquidate outstanding non-performing loans.

Meanwhile, branch managers across the country have reported sustained queues of depositors seeking to liquidate their holdings, noting an absence of clear administrative guidance from senior executives on how to manage the panic.

Systemic Macroeconomic Trends

The instability at Islami Bank occurs amidst a broader macroeconomic trend where public confidence in the formal banking sector remains under pressure, resulting in an increase in cash held outside the banking system.

• December 2023: Total currency circulating outside formal banking structures stood at Tk 275,000 crore.

• March 2026: Total currency circulating outside banks rose to Tk 303,000 crore.

This net increase of nearly Tk 28,000 crore in circulating physical currency highlights the wider systemic challenges facing financial institutions across the national economy.