Islami Bank's H1 profit plunges 81% amid rising defaults, soaring deposit costs

Islami Bank Bangladesh PLC, once the country's most profitable lender, has seen its fortunes deteriorate sharply as its consolidated net profit fell by 81% in the first half of 2025, battered by surging deposit costs and a mountain of defaulted loans.

According to the bank's disclosure on the Dhaka Stock Exchange (DSE) on Monday, its consolidated net profit stood at Tk67.40 crore during the January–June period of this year, down steeply from Tk356.92 crore in the same period a year earlier. Earnings per share also plunged to Tk0.42 from Tk2.22 a year ago, reflecting the worsening profitability.

The decline was largely attributed to the rising cost of deposits, which swelled by Tk1,347 crore over the reporting period, said the bank in its statement. 

Infographic: TBS

The bank's net asset value per share dropped to Tk44.39, down 2.2% year-on-year.

Reflecting investor concerns, Islami Bank's shares closed 2.07% lower at Tk42.50 on the Dhaka bourse today. Its market capitalisation now stands at Tk6,842 crore, far below its peak when it was regarded as the most valuable bank stock on the exchange.

The gloomy half-yearly results follow an already turbulent 2024 for the bank, when its annual net profit dropped 83% to Tk108 crore. That figure, however, was largely artificial, as the lender had benefited from a Bangladesh Bank facility that allowed it to defer provisioning against default loans. 

A senior central bank official acknowledged that Islami Bank had been allowed to show a positive balance sheet to prevent damaging its reputation with foreign lenders, though in reality it faced massive losses.

Despite showing a nominal profit, the bank was unable to declare any dividend for 2024 — the first such instance in its 32-year history. The central bank recently barred lenders with provision deferrals from distributing dividends, leaving shareholders empty-handed.

The most alarming red flag is the bank's asset quality. Non-performing loans skyrocketed to 40% of its portfolio by the end of 2024, a dramatic leap from just 3% in 2023. This unprecedented surge created a staggering provision shortfall of Tk69,770 crore. 

Under banking regulations, lenders are required to set aside adequate provisions to cover potential loan losses to safeguard depositors' money. Islami Bank's failure to do so points to the gravity of its crisis.

Behind the turmoil lies years of mismanagement and alleged large-scale financial irregularities linked to the S Alam Group, which took control of the bank in early 2017. An internal audit conducted after the regime change in August 2024 uncovered that the group and its affiliates had taken out loans worth nearly Tk1 lakh crore in violation of banking rules. Many of these loans were never serviced properly and eventually turned into defaults, plunging the bank into one of the worst crises in its history.

In September last year, Bangladesh Bank intervened, reconstituting Islami Bank's board and removing the influence of the S Alam Group. The new board initiated an internal probe, which confirmed the massive irregularities and losses. 

However, analysts note that the road to recovery will be long and difficult. With nearly 40% of its loan book impaired and such a huge provisioning gap, Islami Bank's capital base remains under severe stress. Market watchers warn that without decisive action and strong regulatory oversight, restoring confidence among depositors and investors will be a daunting task.