Islami Bank seeks government investment
The country’s largest private commercial bank, Islami Bank, has requested a Tk6,000 crore equity injection from the government or state-owned entities. If approved, this would grant the government a 78.8% ownership stake, granting it operational control over the bank’s management and governance.
To achieve this, the bank plans to issue 600 crore new shares at a face value of Tk10 each through a private placement. This move would increase its paid-up capital from Tk1,609.99 crore to Tk7,609.99 crore. The bank formally submitted its “Capital Restoration Plan 2027-2033” to the Bangladesh Bank on April 4, outlining the share issuance as a means to stabilize its financial standing.
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Bangladesh Bank’s Banking Regulation and Policy Department later sought government clarification on the proposal, sending a letter to the Financial Institutions Division secretary on November 9. The central bank confirmed Islami Bank’s intention to raise capital by issuing additional shares while emphasizing that the final decision on government participation rests with the government.
Government Involvement Planned
An Islami Bank executive explained that the government’s involvement is intended to block former owners from reacquiring influence. The official noted that if the new shares were made available to private investors, “previous owners would get an opportunity to buy them back.” They also stated that government funds would help bridge capital gaps and meet regulatory requirements, while diluting the stakes of S Alam Group-linked shareholders, reducing their control over the bank. The executive added that if the bank’s financial recovery succeeds, the government could later sell these shares to the broader public.
Former Bangladesh Bank governor Ahsan H Mansur dismissed the proposal as misguided. “Governments across the world have withdrawn from the banking sector, while we are moving in the opposite direction.” he said. He argued that state ownership does not improve bank performance and warned that Islami Bank’s reputation could suffer if the government becomes its majority shareholder. Mansur also cautioned that the Tk6,000 crore investment might be depleted within years, requiring further infusions. Instead, he recommended seeking funds from former foreign investors, including the Islamic Development Bank, Dubai Islamic Bank, and Kuwait Finance House, as well as domestic private investors—provided stricter regulatory oversight is enforced.
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Bank’s Financial Struggles
The bank’s financial struggles show the urgency of the situation. In the first nine months of the current fiscal year, it reported a net loss of Tk3,303 crore—a stark contrast to the Tk79 crore profit recorded in the same period last year. The third quarter alone saw losses of Tk1,976 crore. As of September, the bank’s total outstanding loans reached Tk1,81,860 crore, with Tk1,00,600 crore classified as defaulted, according to data from the Bangladesh Bank. Additionally, the bank faces a provisioning shortfall of Tk85,886 crore, further complicating its recovery efforts.
The bank’s ownership history adds complexity to the issue. During the 2001-2006 four-party alliance government, its leadership included figures linked to Jamaat-e-Islami. Later, under the Awami League administration, the S Alam Group and 24 affiliated entities acquired 131.35-131.89 crore shares, representing 81.59%-81.92% of total shares, though these are currently frozen by court order. The remaining 18.08%-18.41% is held by general and institutional investors. Currently, a Bangladesh Bank-appointed administrator oversees the bank’s operations following the resignation of its former chairman and managing director after the February elections.
