Standard Bank is mired in internal conflict as its bad loans rise to nearly a third of total lending, exposing governance problems at the shariah based lender already under scrutiny by the central bank, show documents. 

At a time when the country's banking sector is facing a fragile confidence and a growing pile of bad debt, the 16-member board at the private bank has apparently split into two camps over the fate of its managing director.

Chairman Mohammed Abdul Aziz leads one faction. The other is steered by his son and Vice-Chairman AKM Abdul Alim.

The Alim group has accused the Managing Director Md Habibur Rahman of corruption and sought his removal, alleging involvement in loan irregularities during his previous tenure at Union Bank. The faction has written twice to the Bangladesh Bank (BB) asking for Rahman to be placed on forced leave.

The central bank rejected the request, saying the allegations are yet to be proven, and instructed the board to continue with Rahman.

Meanwhile, Chairman Aziz's group has defended Rahman and accused the opposing camp of obstructing the bank's work and attempting to place their preferred candidates in key roles, including its exchange houses in London and the United States.

"The managing director is innocent and has done no wrong," said Chairman Aziz, adding that the central bank would not have allowed him to continue if there were proven irregularities.

In a letter to the central bank governor on November 5, Aziz alleged that the vice chairman's group was disrupting the bank's operations.

The Alim-led group responded with another letter four days later, reiterating that its demand for Rahman's removal and claimed that "numerous corruption cases" are pending against him at the Anti-Corruption Commission (ACC).

The Daily Star has seen at least four such letters.

Speaking on condition of anonymity, bank officials said the feud has paralysed decision making. Board meetings often end in arguments over staffing and management matters.

BALANCE SHEET LEFT BLEEDING

Standard Bank began operations on June 3, 1999. In January 2021, it became a full-fledged shariah-based Islamic bank after receiving central bank approval.

Now the current boardroom quarrel comes as the bank's balance sheet weakens. At the end of 2024, non-performing loans (NPLs) stood at Tk 5,968 crore, or 29.3 percent of total lending, up from 4.8 percent four years earlier.

After the political changeover in August last year, long-buried toxic loans at banks and non-banks surfaced in central bank inspections.

Similarly, Standard Bank's NPLs rose after the BB instructed it to reclassify a large portion of loans previously marked as regular.

In 2023, the bank reported Tk 1,379 crore in bad loans. By the end of 2024, deposits rose to Tk 20,125 crore and total investments to Tk 20,361 crore.

Rahman, managing director and CEO of Standard Bank, said they reduced the NPLs, which were close to Tk 6,000 crore at the end of 2024, by Tk 900 crore in recent months.

BB KEEPING A TAB ON BOARD FEUD

Central bank officials said the BB is closely monitoring the situation.

An earlier BB inspection found various irregularities involving the bank's former chairman Kazi Akram Uddin Ahmed and his son, former director Kazi Khurrum Ahmed. These issues contributed to the bank's financial decline, according to the central bank report.

After the political changeover last year, both of them left key posts at the board.

Regarding the letters recently submitted by the rival factions, BB spokesperson Arefin Hossain Khan said the allegations against the managing director are being investigated but nothing has yet been proven.

He added that infighting among directors could further weaken the bank's overall health.

WHAT THEY SAY

The Daily Star tried to contact AKM Abdul Alim over phone and through WhatsApp messages but received no response.

Director Kamal Mostafa Chowdhury, who signed one of the letters, said there are several allegations against the managing director, which is why the group demanded his forced leave.

He added that there is a corruption case against Rahman filed by the Anti-Corruption Commission.

Chowdhury also accused him of dismissing nearly 100 employees. He claimed that Rahman brings police to the bank during board meetings.

Rahman said he was not involved in lending irregularities at Union Bank. He said the Alim group wants him removed because he refused to "support their unethical activities".

Chairman Aziz said that MD Rahman has done nothing wrong. The BB found no irregularities involving the managing director and asked him to continue.

He added that if Rahman were a bad person the central bank would not have allowed him to stay.

The chairman also claimed that the opposing faction tried to place its preferred candidates at the bank's exchange houses in London and the United States.

He said the bank did not agree to new appointments because it would result in a loss of Tk 50 to Tk 60 lakh.

Economist Moinul Islam, former professor at Chittagong University, said conflict is common among the boards of many private banks. And such institutions often deteriorate quickly.

"Many of the banks were approved through nepotism and board members tend to bring in associates, which fuels further disputes."

Islam said many directors did not assume their roles with the best interests of the bank at heart. So, the central bank should step in before the situation worsens.