How S Alam's looting dragged a top bank from peak to peril
Islami Bank fails to pay dividend for 2024, first in 32 years, but liquidity improves after board reconstruction last Sep
Highlights
- Islami Bank won't pay a dividend this year due to a huge provision shortfall
- The crisis was caused by massive loan corruption by the S Alam Group
- The bank's default loans jumped to 40% in 2024
- An internal audit revealed the S Alam Group took nearly Tk1 lakh crore in loans improperly
- The bank will now be downgraded on the stock exchange
- The new management claims liquidity has improved after S Alam's removal
Islami Bank Bangladesh, once the country's best private bank, declared no dividend for 2024 for the first time in 32 years, as massive loan corruption by the Chattogram-based S Alam Group created a huge provision shortfall, making the lender unable to pay dividends.
The bank incurred a staggering provision shortfall of Tk69,770 crore against default loans at the end of 2024, which barred the lender from declaring any dividends.
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A loan loss provision is an amount set aside from profit against default loans to safeguard depositors' money. Banks are required to account for potential loan defaults and related expenses to ensure they present an accurate picture of their overall financial health.
The huge provision shortfall was caused by an unusual surge in default loans, which jumped to 40% at the end of 2024, compared to only 4% a year earlier.
The bank, which was the highest profit-making institution just a year back with a Tk635 crore profit in 2023, slipped into losses in 2024 due to the massive provision requirements against bad assets.
However, it reported an artificial net profit of Tk108 crore, taking advantage of a provision deferral facility from the central bank.
A senior executive of the Bangladesh Bank said the bank was allowed to show artificial profit, considering the impact on its business with foreign banks, as showing a loss in the balance sheet could create a negative impression among foreign lenders.
He added that the Bangladesh Bank nevertheless instructed the bank to approve the audited financial statement for 2024 with the full provision shortfall of Tk69,770 crore against the classified investments.
Despite showing a profit, the bank could not declare any dividend due to regulatory restrictions. The Bangladesh Bank recently issued a circular barring banks with provision deferral facilities from declaring dividends.
If Islami Bank had to maintain the required provision fully, it would have reported a massive loss.
The bank, which has been listed with the Dhaka Stock Exchange (DSE) since 1985, declared a 10% cash dividend in 2023, retaining its top "A" category status. Each share of the company remained at Tk40 on the DSE.
Earlier, the bank did not declare dividends in 1986, 1987, and 1992. This is the fourth time in its history that it has failed to pay dividends, and the first time in 32 years.
Speaking to TBS, Md Omar Faruk Khan, the newly appointed managing director of Islami Bank, said general shareholders would not be much affected as 82% of the company's shares are held by a single group, S Alam, which has since been seized.
He added that although the bank suffered a massive provision shortfall due to an unusual rise in default loans, its liquidity situation improved over the past year following a reconstruction of the board in the post-uprising era.
In 2023, the bank had a negative balance in its principal account with the Bangladesh Bank and also failed to meet the mandatory daily CRR (Cash Reserve Ratio). However, all negative balances – including those in the principal account, CRR, and other accounts – have now turned into surpluses, Faruk said.
Moreover, the bank mobilised Tk15,000 crore in deposits over the past six months as customer confidence started to recover, he added.
He further said the bank's daily cash flow has turned positive, enabling it to clear all dues with the central bank.
Islami Bank, the country's largest private commercial bank, was taken over by the S Alam Group in January 2017. The group is known for its ties with the former Awami League government, which was ousted after a 16-year rule amid a mass uprising in August 2024. Later in October 2017, some little-known companies purchased shares in the bank.
However, no authorities, including the Anti-Corruption Commission (ACC), at that time questioned the source of the substantial funds linked to these obscure companies.
The Bangladesh Bank reconstructed the board of Islami Bank in September last year following the regime change, which ended S Alam's grip on the bank.
The newly reconstituted board carried out an internal audit to uncover the actual losses caused by massive corruption.
The audit revealed that nearly Tk1 lakh crore in loans were taken by the S Alam Group and its affiliates – both directly and indirectly – by breaching banking regulations, and these loans were not serviced regularly while under the group's control.
Most of the loans turned into defaults after the regime change, as S Alam Group's chairman, Mohammad Saiful Alam, remained outside the country, according to bank insiders.
The Bangladesh Bank has since been seeking both foreign and local strategic investors to purchase the seized shares of the S Alam Group.
Islami Bank has also put various assets of S Alam on auction under the Money Loan Court Act, 2003, in an effort to recover the loans.
