Islami Bank takes emergency Tk 8,000cr from BB

[fallstuff]

Islami Bank takes emergency Tk 8,000cr from BB​

Islami Bank has started to avail a central bank facility that is only summoned during extraordinary circumstances, as the Shariah-based lender looked to dress up its balance sheet ahead of the year's end.

Called the "lender of the last resort", the facility allows banks to borrow from Bangladesh Bank at 8.75 percent interest. As a Shariah-based lender, it is not supposed to borrow by offering interest.

But so dire was the need for fund injection for the bank, which suffered a cash reserve ratio (CRR) shortfall of Tk 5,101 crore on December 28, that it went against its principles.

On December 29, the last working day before the year-end, Islami Bank took Tk 8,000 crore under the BB special arrangement at 8.75 percent interest, which is equivalent to the special repo rate, according to Md Mezbaul Haque, the central bank's spokesman.


The special repo rate is the rate at which cash-strapped banks take loans from the central bank to ease their immediate liquidity crunch.

In exchange for the funds, Islami Bank presented a demand promissory note, which is a legal instrument in which the issuer guarantees to pay a specific sum of money at an agreed time.

A bank's demand promissory note is usually accepted by the BB when it does not have available bills and bonds to provide as collateral.
"The central bank is considered the lender of the last resort, which is why it provided the funds to Islami Bank," he said, adding that the lender repaid the funds yesterday as the repayment tenure is overnight.

The move was extraordinary: only ICB Islamic Bank and Padma Bank have used the instrument so far, said a BB official on the condition of anonymity due to the sensitivity of the matter.

"If the bank shows a CRR shortfall at its annual balance sheet at the end of a year, the depositors' confidence in the bank will erode further," according to the BB document.

CRR is a portion of the bank's deposits that it must keep in liquid cash with the central bank to protect depositors' interest. In Bangladesh, the CRR is 4 percent.

Islami Bank had a CRR shortfall in 24 days in the last two months of 2022, shows a BB document.


"If required, BB will provide more funds by using the window in the coming days to salvage the lender from the liquidity crunch," said a top BB official involved with the proceedings.

Mohammed Monirul Moula, managing director of Islami Bank, did not respond to The Daily Star's request for comment.

Once the most profitable private sector bank in Bangladesh, the lender's financial health deteriorated after a change in its boardroom in 2017.

The central bank is investigating the bank for gross irregularities in disbursing loans amounting to Tk 7,246 crore to nine companies last year.

This left the bank under tremendous withdrawal pressure, compelling it -- along with Social Islami Bank, First Security Islami Bank, Global Islami Bank and Union Bank -- to take liquidity support of Tk 5,250 crore from BB last month.

S Alam Group, a Chattogram-based business conglomerate, is well-represented in the five lenders' boards.

Islami Bank takes emergency Tk 8,000cr from BB

Islami Bank has started to avail a central bank facility that is only summoned during extraordinary circumstances, as the Shariah-based lender looked to dress up its balance sheet ahead of the year’s end.

www.thedailystar.net

 

[bluesky]

Islami Bank takes emergency Tk 8,000cr from BB

I am no economist. But, I can say this IBL asking for an emergency loan that may be followed by other banks victimized by loan defaulters and stealing will cause runaway inflation.

The market automatically reacts to the circulation of paper money. People have swindled the Islami Bank of Tk30,000 crores. This is the reason it has little money for daily transactions.

BB will have to print much of this loan money but the Tk30,000 crore money is also circulating in the market because dollars have been bought with this money.

With new money supplied by BB, the total circulation of money will increase which will create inflation. Please add other stolen money to S. Alom's stolen money.

 

[BananaRepublicUK]

I am no economist. But, I can say this IBL asking for an emergency loan that may be followed by other banks victimized by loan defaulters and stealing will cause runaway inflation.

The market automatically reacts to the circulation of paper money. People have swindled the Islami Bank of Tk30,000 crores. This is the reason it has little money for daily transactions.

BB will have to print much of this loan money but the Tk30,000 crore money is also circulating in the market because dollars have been bought with this money.

With new money supplied by BB, the total circulation of money will increase which will create inflation. Please add other stolen money to S. Alom's stolen money.

What happened to the dollar crisis?

It is as elusive as the scarlet pimpernel

I seek him here, I seek him there, is he dangling inside @bluesky underpants?

@EasyNow
@UKBengali
@SoulSpokesman
@Skull and Bones

 

[Skull and Bones]

What happened to the dollar crisis?

It is as elusive as the scarlet pimpernel

I seek him here, I seek him there, is he dangling inside @bluesky underpants?

@EasyNow
@UKBengali
@SoulSpokesman
@Skull and Bones

This interest free Islamic banking is a recipe for disaster for economy.

 

[bluesky]

This interest free Islamic banking is a recipe for disaster for economy.

But, why do you think interest-free if the clients can take a part of profits.

I personally think there must be an interest payment for an individual’s deposits. Otherwise, he cannot cope with the annual inflation.

By the way, it is a mistake not to set up an interest rate. People usually confuse interest with Usury. Usury is prohibited. Interest is a different matter.

 

[Skull and Bones]

But, why do you think interest-free if the clients can take a part of profits.

I personally think there must be an interest payment for an individual’s deposits. Otherwise, he cannot cope with the annual inflation.

By the way, it is a mistake not to set up an interest rate. People usually confuse interest with Usury. Usury is prohibited. Interest is a different matter.

Its a free money glitch, take interest free loan from from an Islamic bank, and invest in a high yield bond or dividend stocks.

 

[BananaRepublicUK]

Its a free money glitch, take interest free loan from from an Islamic bank, and invest in a high yield bond or dividend stocks.

That’s what S Alom is doing

 

[leonblack08]

This interest free Islamic banking is a recipe for disaster for economy.

Its a free money glitch, take interest free loan from from an Islamic bank, and invest in a high yield bond or dividend stocks.

Islamic Banking does not have interest, but it is not free either. The main principle is transfer of risk. In traditional lending, the lender has virtually no risk (if we say default risk is mitigated by property seizure). That equates to making money out of thin air. But for Islamic banking - there is a larger element of risk involved for the lender, as they have a bigger stake in the transaction.

For example - for mortgage, if a house cost USD 100, the Islami bank will buy the house on your behalf and sell it to you. You pay them the total amount plus their profit margin (100+x% of profit) in installments.

In this case - the bank actually owns the house as opposed to the borrower. That equates to greater risk and the transaction becomes a commercial transaction as opposed to interest based lending transaction.

 

[bluesky]

In this case - the bank actually owns the house as opposed to the borrower. That equates to greater risk and the transaction becomes a commercial transaction as opposed to interest based lending transaction.

In any country, it is the bank that owns the house and the land on which the house is built until the last installment with interest is paid back to the bank.

After the last payment, the real Owner has to apply for changing the title in a Registration office. The Bank supports it by providing all the relevant docs.

 

[BananaRepublicUK]

In any country, it is the bank that owns the house and the land on which the house is built until the last installment with interest is paid back to the bank.

After the last payment, the real Owner has to apply for changing the title in a Registration office. The Bank supports it by providing all the relevant docs.

You are correct.

Bank holds the deed until the loan is paid off.

In the U.K., certain structural work also has to be approved by bank whilst it holds the deed.

Islamic lending has less risk for the borrower but is also less lucrative.

Classic risk versus reward.

 

[leonblack08]

In any country, it is the bank that owns the house and the land on which the house is built until the last installment with interest is paid back to the bank.

After the last payment, the real Owner has to apply for changing the title in a Registration office. The Bank supports it by providing all the relevant docs.

I may have oversimplified the example. But the principle of risk was correct. Here's an article that explains the concept better -

How Are Islamic Mortgages Different to Conventional Ones? - IslamicFinanceGuru

How Are Islamic Mortgages Different to Conventional Ones? What are the practical differences between Islamic mortgages to your standard High street one?

www.google.com

 

[bluesky]

I may have oversimplified the example. But the principle of risk was correct. Here's an article that explains the concept better -

How Are Islamic Mortgages Different to Conventional Ones? - IslamicFinanceGuru

How Are Islamic Mortgages Different to Conventional Ones? What are the practical differences between Islamic mortgages to your standard High street one?

www.google.com

I understand what really you wanted to say. I just tried to clarify it by giving more explanation. Thanks.

 

[fallstuff]

In any country, it is the bank that owns the house and the land on which the house is built until the last installment with interest is paid back to the bank.

After the last payment, the real Owner has to apply for changing the title in a Registration office. The Bank supports it by providing all the relevant docs.

Not in Florida, USA.
The deed is transferred to the buyer regardless of cash or credit transaction on the day of the purchase.
The bank holds a mortgage in the house as a security interest.
If the buyer fails to make scheduled payments then the bank starts a foreclosure process to take ownership in order to recoup money owed.

 

[bluesky]

Not in Florida, USA.
The deed is transferred to the buyer regardless of cash or credit transaction on the day of the purchase.
The bank holds a mortgage in the house as a security interest.
If the buyer fails to make scheduled payments then the bank starts a foreclosure process to take ownership in order to recoup money owed.

You want to say, the private Owner can sell the house and plot without paying the dues because these are titled in his name.

Very good. It must be Heaven in Florida. All deeds are transferred but the ownership is not until the last payment.

 

[EasyNow]

Islamic Banking does not have interest, but it is not free either. The main principle is transfer of risk. In traditional lending, the lender has virtually no risk (if we say default risk is mitigated by property seizure). That equates to making money out of thin air. But for Islamic banking - there is a larger element of risk involved for the lender, as they have a bigger stake in the transaction.

For example - for mortgage, if a house cost USD 100, the Islami bank will buy the house on your behalf and sell it to you. You pay them the total amount plus their profit margin (100+x% of profit) in installments.

In this case - the bank actually owns the house as opposed to the borrower. That equates to greater risk and the transaction becomes a commercial transaction as opposed to interest based lending transaction.

Tbh, it is the same thing in a new package. In reality and from my experience, Islamic mortgages end up costing the borrower more, the rates are higher, the fees are higher and the process takes forever.

To me it's another scam to fool decent Muslims into paying more for the same money.

They even follow LIBOR, adjusting rates in line with Bank of England base interest rate.