Islami Bank, Bangladesh’s largest private sector lender, remains in a prolonged leadership vacuum that has stalled major decisions and strategic initiatives at the institution. Since June, the bank has operated without a fully constituted board of directors, while the position of managing director has been vacant since April. Md Omar Faruk Khan, the former MD and CEO, was placed on forced leave earlier this year, with Additional Managing Director Md Altaf Hossain stepping in as acting MD.

In the absence of a formal board, Bangladesh Bank Executive Director Mohammad Zahir Hussain has been granted authority by the central bank to exercise the powers and duties normally managed by the bank’s board. However, according to bank officials, Zahir’s role has largely been limited to routine matters, leaving significant strategic decisions on hold. Officials cited concerns that the centralization of authority in a single individual reduces decisions to simple approvals without the benefit of in-depth discussion or analysis.

Zahir acknowledged performing these duties alongside his primary responsibilities but gave no indication on when a permanent board might be appointed. Md Altaf Hossain also noted uncertainty about the timeline for the bank returning to normal governance, pointing out that the bank has been allowed to operate without an MD for an extended period under special consideration by Bangladesh Bank.

Islami Bank’s current difficulties contrast sharply with its earlier performance. The bank’s financial state began to deteriorate after 2017 when the conglomerate S Alam took control and extended roughly 80 percent of the bank’s loans to its own firms, contravening banking regulations. As of June, the institution recorded the highest level of bad loans in Bangladesh’s banking sector, with non-performing loans amounting to Tk 98,914 crore, or 52.15 percent of its total loans.

Following political changes in August 2024, the bank was released from S Alam’s control and placed under closer supervision by Bangladesh Bank. The central bank imposed a cap limiting Islami Bank to issuing loans of up to Tk 100 crore, encompassing both funded and non-funded facilities. According to Altaf, the bank's restricted lending capacity has reduced the range of complex decisions required, allowing basic operations to continue without a full board.

Experts warn that the absence of a fully functioning board undermines corporate governance and oversight, complicating critical functions such as budget approvals and regulatory compliance. Anis A Khan, former chairman of the Association of Bankers, Bangladesh, noted that this governance gap could erode employee morale and shake customer confidence.

The leadership vacuum also affects the status of several senior executives whose tenures have expired or are nearing expiration. Extensions for deputy managing directors and other key officials remain pending, awaiting board approval, which has been stalled amid the current governance void. Islami Bank has formally requested Bangladesh Bank to approve contract renewals, but no decisions have been made yet.

Internal sources emphasize the urgency of appointing a competent board to restore confidence and revitalize the bank’s operations. However, the central bank has approached this task cautiously due to prior controversies. In May 2024, Bangladesh Bank appointed Md Khurshid Alam, a former deputy governor, as chairman following the resignation of the previous board head. Khurshid’s tenure was marred by protests and internal dissent, culminating in his removal after staff unrest and public demonstrations led to a liquidity crisis at Islami Bank.

Despite injecting Tk 17,000 crore to stabilize the situation, Bangladesh Bank dissolved the entire board in mid-June as the bank’s challenges persisted. A central bank spokesman, Arief Hossain Khan, stated that the authority is conducting thorough vetting to ensure the new board is capable and transparent. A new managing director and board appointment are expected to be announced in the near future as efforts continue to resolve Islami Bank’s prolonged leadership crisis.