Tk86,000cr hole: Islami Bank's provision shortfall requires 143 years to cover, experts warn

Infographics: TBS

Islami Bank Bangladesh Limited (IBBL), the country's largest lender by assets, is staring at a gaping hole in its balance sheet – a provisional shortfall of Tk85,888 crore as of September this year. 

Bangladesh Bank has granted the bank a 20-year deferral to cover this deficit, following IBBL's 15 October application that included an action plan outlining its proposed course of action.

The number is so staggering that it raises this obvious question: how many years will the bank need to climb out of this hole if it cannot recover loans from its biggest borrowers, particularly the S Alam Group? 

Recovery challenges are already visible. Although the bank has attached several S Alam properties, it has failed to attract buyers at auction, underscoring the uphill battle ahead.

Let's do the math.

Over the past few years, Islami Bank has managed to stay profitable, though modestly. It posted Tk616 crore in net profit in 2022 and Tk635 crore in 2023, according to its annual reports. Before the pandemic, in 2018 and 2019, profits hovered around Tk600 crore a year.

Now, imagine if the bank channels every single taka of its profits to make up for this provisioning gap – without paying dividends, without reinvesting in growth, without any other leakages.

Even then, at the average net profit-earnings capacity of Tk600 crore a year, it would take 143 years for Islami Bank to plug the hole. That's more than a lifetime and more than three times the first-generation bank's entire existence.

And if we take this year's performance as the base, the picture turns even bleaker. Despite some rebound in the third quarter, Islami Bank's cumulative nine-month consolidated profit stood at Tk99.77 crore. Extrapolating that over the full year suggests a total net profit of around Tk133 crore in 2025.

At that pace, it would take an astonishing 645 years to make up the shortfall, a span stretching beyond imagination for a financial institution that is supposed to run on prudence and confidence.

Even under an optimistic scenario – say, the bank's net profits grow at a 15% compound annual growth rate (CAGR) starting from 2025 – the climb remains painfully steep. It would still take nearly 35 years for Islami Bank to fill the provisioning gap, assuming no new shocks or provision shortfall hit the balance sheet and profits grow uninterrupted.

"There is no magic – it is impossible for Islami Bank to cover this shortfall by earning profits," said Toufiq Ahmad Chowdhury, former director general of BIBM.

There are two possible ways by which the bank can be rescued, he said. Either the bank has to recover the money that went out in the name of loans or by injecting fresh funds, which may not be possible for sponsors.

"So, the government has to come up and allocate money for this bank from budgets," Chowdhury told TBS.

Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), said the shortfall is not just a number on paper – it is a mirror reflecting years of misgovernance, reckless lending, and regulatory inertia that have eroded trust in what was once the country's largest bank by balance sheet.

"An Tk86,000 crore shortfall is extremely alarming. The bank urgently needs policy intervention and fresh capital from its sponsors," she told The Business Standard.

However, Fahmida cautioned against the government injecting public funds into the bank. "Past experiences with such recapitalisation efforts have not produced good outcomes," she said.

Asked about Islami Bank's 15% compound annual growth in profits, she said maintaining that pace would be extremely difficult. "Even if the bank somehow manages it, it could take around 35 years to recover from this provisioning shortfall," she noted.

Then why, despite such a massive hole, are depositors at Islami Bank not facing the same restrictions as those in the five weak banks now being merged?

A senior Islami Bank official, who spoke on condition of anonymity, said, "We received a net deposit of Tk19,000 crore during January-September this year. There is no liquidity crisis, and no depositor has been denied their money."

He added that the bank has been receiving so much in deposits recently that it has had to lower rates, while remittance inflows have also increased significantly. 

"Still," he warned, "if the government does not extend support, it will be very difficult for the bank to survive. We are trying to sell off collaterals to adjust loans, but those will not be enough."

Experts say provision shortfall matters because it exposes the true weakness of a bank's balance sheet. Provisions are buffers set aside to absorb losses from bad loans; when a bank fails to keep adequate provisions, it means potential losses are not being recognised. This artificially inflates profits, masks deteriorating asset quality, and gives regulators and depositors a misleading picture of financial health. A large shortfall erodes capital, undermines the bank's ability to lend, and increases the risk of insolvency.

What IBBL MD says

Md Omar Faruk Khan, managing director of Islami Bank, acknowledged that the bank cannot bridge such a massive shortfall through profits alone. "We have to reduce the provision requirement," he told TBS.

He noted that nearly half of the bank's investment portfolio is currently classified, and the bank has a plan to bring this down gradually. "We have given the highest priority to recovering our nonperforming loans," he said.

As part of that effort, Khan said the bank has already attached properties belonging to S Alam Group worth nearly Tk20,000 crore after failing to draw buyers at auction. "We have also decided to rate our existing clients, which will have an impact on the provision requirement," he added.

"We're confident that we will be able to address this shortfall within 20 years," he said.

Provision shortfall of IBBL and 5 banks being merged

The provision shortfall for the five banks being merged is estimated to be around Tk135,000 crore as of August 2025. The individual shortfalls are led by First Security Islami Bank (Tk53,890 crore), followed by Social Islami Bank (Tk24,845 crore), Union Bank (Tk23,811 crore), Exim Bank (Tk20,558 crore), and Global Islami Bank (Tk12,124 crore).

Meanwhile, Islami Bank's provision shortfall surged to Tk85,888 crore at the end of September this year. Of which, Tk82,186 crore was for investments and Tk3,702 crore for off-balance sheet items. 

The shortfall was Tk16,125 crore higher in September compared to the required provision at the end of December 2024, meaning that this whooping sum was added in nine months only, according to IBBL's third quarter report.

IBBL sought 20 years to cover the shortfall

As 90% of the bank's operating income is spent for operating expenses, it is clear that the bank won't be able to keep aside a big sum to cover provision shortfall

For the period 01 January to 30 September 2025, the bank's total operating expenses were Tk2,794 crore, while its total operating income was Tk3,073 crore. This means that 90.9% of the operating income is already being used to cover operating expenses, leaving only 9.1% (approximately Tk279 crore as profit before provisions.

Islami Bank submitted a letter to the central bank on 15 October, requesting it for a deferral of 20 years (already approved by BB), according to insiders. Will the bank be able to cover the mammoth shortfall in just two decades? 

But the bank itself gave the answer in its third quarter report published a few days ago.

Over Tk16,000 crore has been added to the provision requirement in nine months of this year, but the bank has been able to maintain a lump sum amount of Tk27 crore for investments and off-balance sheet items for the same period, hoping to increase the amount at the year end.

What led to this irrecoverable damage

IBBL had been performing reasonably well until 2016, despite some underlying challenges. But the situation began to change rapidly from 2017, after S Alam Group took full control of the bank and several Middle Eastern investors withdrew their stakes.

According to the bank's own 2024 report, S Alam Group and a number of its affiliated companies borrowed more than Tk73,000 crore from IBBL – nearly 50% of the bank's entire loan portfolio.

Yet the mortgaged assets against these loans were valued at only Tk4,359 crore, meaning that just Tk1 out of every Tk17 lent was backed by collateral.

Many of these loans were sanctioned in ways that violated fundamental banking norms. 

One striking example is Silver Food Industries, a struggling flour mill in Chattogram that S Alam Group Chairman Saiful Alam (Masud) acquired for Tk18 crore in mid-2022. On 6 April 2023, Islami Bank's Anderkilla branch approved a Tk850 crore loan for this mill, a figure that has since grown to more than Tk1,000 crore.

Last week, the Anti-Corruption Commission decided to file a case against 67 individuals, including the S Alam Group chairman, over allegations of loan fraud and the embezzlement of about Tk10,500 crore from Islami Bank through abuse of power and influence. If filed, it would become the largest financial embezzlement case in Bangladesh's history.