Bank of Credit and Commerce International - Lending Practices

Lending Practices

BCCI's rapid growth alarmed the financial community, as well as regulators. When a bank grows rapidly, it is lending more and more money each year. BCCI contended that its growth was fueled by the increasingly large number of deposits by oil-rich states who owned stock in the bank as well as by sovereign developing nations. However, this claim failed to mollify the regulators. For example, the Bank of England ordered BCCI to cap its branch network in the United Kingdom at 45 branches.

There was particular concern over BCCI's loan portfolio because of its roots in areas where modern banking was still an alien concept. For instance, a large number of its customers were devout Muslims who believed charging interest on loans—a major pillar of modern banking—was riba, or usury. In many Third World countries, a person's financial standing didn't matter as much as his relationship with his banker. One particularly notable example is the Gokal family, a prominent family of shipping magnates. They had a relationship with Abedi dating back to his days at United Bank. Abedi personally handled their loans, with little regard for details such as loan documents or creditworthiness. At one point, BCCI's loans to the Gokal companies were equivalent to US$ 1.5 billion, three times the bank's capital. Longstanding banking practice dictates that a bank not lend more than 10 percent of its capital to a single customer.