Islami Bank’s provision shortfall nears record Tk 70,000cr

Islami Bank
Bangladesh PLC ended last year with a provision shortfall of nearly Tk 70,000
crore, audit reports show, exposing cracks in the financial health of the
country's largest Shariah-based commercial lender for the first time in its
four-decade history.
Weak
asset quality in loans and investments, along with the bank's failure to set
aside adequate funds to cover potential losses from defaults or bad debts,
overshadowed its reported Tk 100 crore profit for 2024.
After the fall of the previous
government, several banks, especially those linked to the controversial
conglomerate S Alam Group, faced severe liquidity stress as their actual
financial condition came to light.
Islami
Bank also came under pressure from rising default loans, exposing it to heavy
losses. However, it avoided slipping into the red last year largely because
provisions were not fully maintained, and depositors chose not to withdraw
their funds.
Concerns
about the bank's financial health are not new. Rather, Islami Bank has been in
the headlines for years over lending anomalies and irregularities. But this is
the first time an audit has shown, with hard numbers, how deep the problems
run.
The
bank says the audit findings reflect "long-buried bad loans"
uncovered after the political changeover in August last year. It claims to be
in recovery mode, with the Bangladesh Bank (BB) indicating the lender is
turning around.
Islami
Bank said it welcomed 30 lakh new depositors in the past one year till August
2025, and saw deposits grow by Tk 18,200 crore in the first eight months of
this year even amid a turbulent banking time.
The
central bank has also kept the bank outside its merger plan, saying depositors
are still showing their faith in the bank.
MASSIVE
SHORTFALL OVERSHADOWS PROFIT
Last
year, Islami Bank was required to keep provisions of Tk 76,715 crore for
classified loans and deposits parked with troubled non-bank financial
institutions, according to auditors Mahfel Huq & Co Chartered Accountants
and A. Wahab & Co Chartered Accountants.
Against
this, the bank maintained only Tk 6,945 crore, leaving a gap of Tk 69,770
crore, according to the auditors.
At
the end of 2024, provision shortfalls across the entire banking sector surged
more than sixfold year-on-year to Tk 170,655 crore.
Auditors
said that by failing to make full provisions, Islami Bank overstated assets,
net profit and equity while understating liabilities.
Despite
the massive shortfall, Islami Bank still posted a profit of Tk 108 crore in
2024, down from Tk 635 crore the year before.
On
defaulted loans, the bank said in a written response to The Daily Star that
defaults had risen sharply.
"Many
of these loans had actually gone bad earlier, but they were officially
classified as defaulted only in 2024 by the auditors and Bangladesh Bank
inspection team," the bank said.
It
acknowledged that because the full provision had not been set aside, the profit
figure "looks higher than it would have been otherwise".
The
BB allowed some flexibility under forbearance facilities, giving the bank time
to gradually adjust its provision shortfall.
"As
per directives of the central bank, we are preparing a time-bound action plan
to gradually overcome the provision shortfall," the bank said.
It
said the plan will include "specific steps, targets, and timelines to
ensure that the shortfall is covered in an orderly manner".
'DEPENDENT
ON REGULATORY SUPPORT'
Auditors
said Islami Bank's stability now depends on regulatory backing. They also noted
that its cash reserve ratio (CRR) and statutory liquidity ratio (SLR) were
below regulatory thresholds throughout the year, indicating persistent
liquidity stress.
CRR
is the percentage of a bank's deposits held as cash with the central bank,
while SLR is the share maintained as liquid assets such as cash, gold or
approved government securities.
Under
Basel III rules, a set of global banking regulations, a capital adequacy ratio
of 12.5 percent is required. Islami Bank reported only 7.6 percent.
Besides,
the spike in bad loans has been dramatic.
Classified
loans ballooned 849 percent to Tk 65,715 crore, while provisions against these
toxic assets rose 68 percent to Tk 1,045 crore from Tk 621 crore the year
before.
The
bank told The Daily Star that the auditors' comment about its going-concern
status was based on previous-year reports.
It
said it has met most regulatory requirements, including the CRR, SLR, liquidity
coverage ratio (LCR) and maximum cumulative outflow (MCO).
It
has also repaid BB's Tk 2,308 crore overdraft facility ahead of schedule,
cleared Tk 2,395 crore in money market dues under BB guarantees, and repaid Tk
1,700 crore borrowed from other banks without central bank support.
Islami
Bank said it had recovered about Tk 20,000 crore of bad loans.
"Therefore,
we do not currently face any threat to the bank's going concern," the
statement added.
TRUST
IS THE KEY
Despite
its vulnerabilities, Islami Bank grew deposits by Tk 6,162 crore, or 4 percent,
year-on-year in 2024, at a time when many banks saw erosion.
In
the first eight months this year, deposits rose by Tk 18,200 crore.
The
bank says it serves "mass people" with a base of 2.5 crore clients,
with 90 percent of deposits coming from retail customers and less than 2
percent from corporates, showing the breadth of its deposit base.
"This
growth reaffirms the continued loyalty of our customers and our stable
financial standing in the market," it said.
Foreign
exchange gains provided another cushion, with net exchange earnings surging to
Tk 1,298 crore from Tk 265 crore a year earlier.
The
bank said the gain mainly came from the increase in the value of the bank's
foreign currency assets. "Since we held more foreign currency assets in
2024 than in 2023, the revaluation created higher profits."
It
added that the profit also reflected favourable currency fluctuations and gains
on its foreign currency-denominated asset gap.
Following
the July uprising, restoring customer confidence became its top priority, said
the bank.
It
said a three-phase restructuring plan was launched. The first phase focused on
resolving the liquidity crisis, while foreign audit firms were brought in to
review past activities, and their recommendations were implemented.
















