How UCB, IFIC and Islami Bank win back depositors

Highlights:

• Three major banks regain deposits after major board reforms
• Strong deposit growth contrasts with severe capital shortfalls
• Regulatory barriers delay essential capital-raising approvals
• UCB, Islami Bank, IFIC unable to expand without new capital
• Islami Bank awaits court decision to replace S Alam shares
• IFIC seeks government support while pivoting to SME lending

More than a year after massive loan scams triggered panic withdrawals, three major private commercial banks — UCB, IFIC and Islami Bank — have staged a strong recovery, regaining depositor confidence following sweeping board reforms.

Together, the three institutions, which collectively hold over 15% of Bangladesh's total banking sector deposits, have recorded robust double-digit deposit growth in the first 10 months of 2025. But despite this turnaround, their business expansion remains constrained by severe capital shortages, limiting their ability to generate income from the renewed deposits.

The banks were placed under new boards shortly after the political change on 5 August 2024, when Bangladesh Bank dissolved their previous boards and seized the shares of former controllers over large-scale corruption and loan irregularities.
UCB was freed from the influence of former land minister Saifuzzaman Chowdhury's family; Islami Bank from the S Alam Group; and IFIC from Salman F Rahman, former private sector adviser to the ousted prime minister.

All three banks are now preparing capital-raising plans through rights issues, subordinated bonds and onboarding new investors. Bangladesh Bank has already granted them forbearance, allowing limited operations despite provision shortfalls. However, the banks now need cooperation from the Bangladesh Securities and Exchange Commission (BSEC), whose approval is essential for issuing new shares or bonds.

Speaking to TBS, Mohammad A (Rumee) Ali, former deputy governor of Bangladesh Bank, said the capital market should be the first resort for banks seeking to rebuild capital. But he noted that some directors may be reluctant because new share issuance dilutes their holdings.
He urged the BSEC to relax certain rules in view of the extraordinary circumstances, saying: "Banks cannot operate without adequate capital. The regulator must consider the broader stability of the industry."

However, several banks with severe capital deficiencies have already been barred by the BSEC from issuing new shares due to non-compliance linked to high NPLs and low capital.
Multiple bankers told TBS that they have been unable to secure meetings with BSEC Chairman Khondoker Rashed Maqsood to discuss their proposals. Maqsood declined to comment when contacted.

TBS Infograph

UCB: Deposit surge but capital bottleneck

UCB, one of the country's top five private commercial banks by deposit size, recorded over Tk10,000 crore in net deposits during January–September 2025 — far exceeding the Tk4,000 crore collected in all of 2024.
Its total deposits reached Tk63,000 crore at the end of September, the fourth highest among private banks, with retail clients contributing 56% of the total — a sign of restored public trust.

The bank is now fully compliant with CRR, SLR and ADR requirements. But a capital shortfall is preventing business expansion: UCB's CRAR stood at 7.69% in September, below the 10% minimum regulatory threshold.

In June, the bank announced a plan to issue shares equivalent to 50% of its paid-up capital to a strategic investor. It also proposed Tk775 crore in rights shares and Tk800 crore in subordinated bonds to increase its CRAR above 12.5%.
The proposal has been pending at the BSEC for four months over compliance issues.

UCB Additional Managing Director Nabil Mustafizur Rahman said approval delays stem from the bank's high default loan ratio above 10%, ongoing losses, and sponsors' shareholding falling below the regulatory 30% requirement. He said these problems were inherited from the previous board.

He said financial health cannot be improved overnight, as massive corruption by the previous board caused the high default loans.

"We plan to onboard new strategic investors by issuing shares, as sponsor shareholdings fell below 30% following the board resolution and the central bank's cessation of previous directors' shares," he said, adding that the bank now needs regulatory cooperation, as this is an extraordinary situation.

For instance, the Bangladesh Bank granted five years' forbearance to maintain provision shortfalls, considering the reform activities by the newly formed board, he said. But, regulatory requirements for obtaining approval for rights shares should be eased based on the business recovery plan they submitted.

"The bank has regained depositors' confidence, which is already reflected in strong deposit inflows. However, we could not expand our business to generate revenue from the liquidity due to the capital shortfall," he said.

"The bank will have to pay out depositors, but if it cannot expand business compared with other competitors, it will remain weak," Mustafizur Rahman added.

Citing an example, the UCB MD said a competitor private bank invested $5 million in purchasing foreign software to expand digital banking. However, UCB could not invest in digital banking due to capital constraints, which will keep the bank lagging behind.

If the bank cannot expand business operations due to a capital shortfall, it will not sustain with only provision forbearance. Moreover, many foreign investors are keen to invest in the bank, but they want to see the result of reforms in financial numbers, he said.

"If the bank cannot raise capital, it will not be able to make a profit or cover its provision shortfalls. Therefore, the bank is in urgent need of raising capital to attract strategic investors," Nabil Mustafizur Rahman added.

What Islami Bank plans to raise capital

Islami Bank — which faced severe run-on deposits after revelations of massive S Alam Group-linked corruption — has regained stability, posting nearly 15% deposit growth in the first nine months of 2025. Its Tk19,000 crore net deposit inflow during this period is the highest among private commercial banks.

The inflows helped the bank meet CRR shortfalls, clear all dues with Bangladesh Bank and maintain its leading position in remittance earnings, with 20% growth this year.

Yet capital erosion caused by years of hidden bad loans left its CRAR at just 7%, far below the 10% requirement. Bangladesh Bank has granted forbearance for its enormous Tk86,000 crore provision shortfall.

Omar Faruk, managing director of Islami Bank, told TBS, "When I joined the bank last year, it was in a CRR shortfall of over Tk2000 crore due to a severe liquidity crisis."

However, the bank recovered public confidence after the reform of the board by the central bank. Moreover, strong remittance inflow helped the bank to turn around, as at least 20% of remittance retained with the bank contributed to liquidity, he said.

The bank started to turn around in October last year after money drainage stopped, Faruk said.

The bank overcame the liquidity crisis and became compliant with CRR and the liquidity ratio. Now the problem is capital and provision shortfall, he said, adding that the previous board and management kept the default loan under the carpet, which was revealed after the regime change.

Right now, the bank does not have a capital raising plan as the S Alam Group has 82% share holdings, which were seized by the central bank. "We are now waiting for the final court order about liquidating S Alam Group's shares," he said.

Faruk said after liquidation, 82% shares will be issued to new strategic investors. "We are confident that we will get strategic partners as our deposits have picked up."

"The bank has no shares in hand to offer new investors until S Alam's share is liquidated. We are also thinking of an alternate option to raise capital through preferential shares or subordinated bonds, but it will take time," Faruk said.

However, the bank will need at least three to four years to improve its capital to the regulatory requirement level. The bank is now planning to go for SME lending due to capital constraints, he added.

 IFIC: Deposit recovery but waiting for government support

IFIC, which lost Tk5,000 crore in deposits in the three months following the July 2024 uprising, has since seen a strong rebound, with Tk6,000 crore in new deposits over the past year. Total deposits rose to over Tk51,000 crore at the end of September, up from Tk45,000 crore last October.

Following board reforms that removed the influence of Salman F Rahman, the bank resumed lending in April 2025 after a months-long freeze due to liquidity pressures.
It secured Bangladesh Bank's forbearance for its Tk17,000 crore provision shortfall, but like the other two banks, its expansion remains constrained by inadequate capital.

IFIC Managing Director Syed Mansur Mustafa said the bank plans to seek a capital injection from the government, which holds more than 30% of its shares.
He said the bank aims to attract strategic investors but needs to strengthen its financial indicators first. It is prioritising SME lending and preparing to expand into microfinance in rural areas through its extensive network of over 1,200 sub-branches.