Islami Bank reported a profit of Tk 1.09 billion for 2024 even after a 68 per cent year-on-year increase in provision in the year for non-performing loans (NPLs) under a strict regulatory measure by the central bank.
The lender had to reveal its actual status regarding the amount of loans that had turned sour to follow the newly-enforced stringent NPL policy. Hence, its NPLs increased to Tk 328.17 billion in December last year from only Tk 71.24 billion six months ago. The default loans again surged to Tk 476.18 billion by March this year.
The higher the loan defaults, the higher the provisions. Islami Bank witnessed its provisions go up to more than Tk 10 billion in 2024. During the time, it also paid a profit of nearly Tk 90 billion on deposits, a 37 per cent increase from the year before.
Higher provisioning and payment on deposits led to an 83 per cent year-on-year fall in profit in 2024, according to the earnings disclosure by the bank on Wednesday.
The Islami Bank board declared no dividend for 2024 for the first time since its listing on the stock exchanges four decades ago.
"The Bangladesh Bank did not allow us to declare any dividends despite making profit as the bank has taken deferral facilities to cover provisioning shortfalls against non-performing loans," said the bank in its earnings notes.
The banks, which are relying on a deferral facility from the central bank to meet provisioning requirements, are barred from paying dividends from 2024 onwards, according to the central bank's latest directive issued in March this year.
Moreover, the banks with non-performing loans exceeding 10 per cent of total loans are prevented from paying dividends to shareholders for 2025.
A large portion of Islami Bank's loans turned sour as S. Alam Group and many other business groups, which had close ties to the previous regime and the Awami League, defaulted on credits taken from the bank.
Meanwhile, Islami Bank witnessed signs of revival of customer confidence. Its growth in deposits is the second highest, having risen from Tk 1.58 trillion in December last year to Tk 1.66 trillion in May this year, according to the data of the central bank.
Islami Bank's downfall
Islami Bank was the best-performing bank even a decade ago as it surpassed all other banks in terms of deposits and loan recovery.
The situation started to change after a hostile takeover of the bank by S Alam Group in 2017. The group chairman Mohammed Saiful Alam had affiliations with the ousted Awami League-led government.
After the takeover, the Chattogram-based conglomerate and its sister concerns reportedly took around Tk 500 billion in loans in seven and a half years in violation of banking rules. As a result, Islami Bank experienced a severe liquidity crisis.
The net operating cash flow per share improved significantly to Tk 57.9 per share in 2024 from Tk 10.63 per share in the negative in the previous year, reflecting the bank's recovery from liquidity crunch.
The bank had not kept adequate provisions for the toxic loans until the political changeover. To salvage the lender, the Bangladesh Bank reconstituted the board on August 28 last year, overthrowing the group's representatives.
Stock performance
After remaining stagnant at the floor price of Tk 32.6 per share on the Dhaka bourse for 15 months, the stock of Islami Bank started rising on August 6 last year, the day after the fall of Sheikh Hasina-led government.
The stock surged to Tk 70.4 per share on September 25 last year, becoming the most-valued bank stock. It is among the three companies with floor price still in effect. It dropped to Tk 41.4 per share by Wednesday on the Dhaka Stock Exchange.
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