Islamic Finance shares plunge 9% after relegation to Z category

Islamic Finance and Investment PLC became the worst-performing stock on the Dhaka Stock Exchange today (3 July), with its share price dropping by 9.09% following its downgrade to the Z category.

The company's share closed at Tk8, the steepest decline on the bourse for the day. The relegation came as the company failed to declare any dividends for two consecutive years.

As a result of the reclassification, merchant banks and brokerage firms will no longer provide margin loans against the company's shares, in line with regulatory rules.

The company posted a loss of Tk171.51 crore in 2024 and declared no dividend. It had also failed to declare any dividend in 2023 due to incurring losses.

However, in the first quarter of the current year, Islamic Finance managed to reduce its losses by 62%, bringing the figure down to Tk8.66 crore compared to the same period last year.

The company has disbursed loans of around Tk400 crore without any eligible security, such as a mortgage or a lien on shares, according to its independent auditor.

According to the Bangladesh Bank guidelines, collateral is an asset pledged by a borrower to a lender until a loan is paid back. If the borrower defaults, then the lender has the right to seize the collateral and sell it to pay off the loan.

The hesitation of a borrower to provide collateral could signal to the financial institution that the borrower is fully aware of the implications of making this pledge, and if he does provide collateral, then he is likely to do everything to avoid the loss of the pledged asset, it added.