Islami Bank experienced a significant drop in profits during the first six months of the current year, from January to June.
The bank posted a profit of Tk 670 million, compared to Tk 3.57 billion during the same period last year.
This marks a year-on-year decline of Tk 2.90 billion, or about 81 per cent. The information comes from the bank’s half-yearly financial report.
According to the report, the primary reason for the sharp fall in profits is a substantial increase in deposit expenses, which outpaced the growth in investment income (profit from loans).
Interestingly, Islami Bank’s investment income actually rose by Tk 2.52 billion—an increase of around 4.25 per cent compared to the same period last year.
From January to June this year, the bank earned Tk 61.88 billion from investment or loan profits, up from Tk 59.36 billion during the same period in the previous year.
However, the cost of interest on deposits rose significantly. In the first half of this year, the bank spent nearly Tk 53.17 billion on deposit interest, compared to Tk 39.71 billion in the same period last year. This represents an increase of Tk 13.46 billion, or 34 per cent.
As the cost of deposits grew much faster than income from investments, the bank's overall profit took a substantial hit.
Following a shift in the country's political landscape in August last year, Islami Bank’s management and operations were freed from the control of S Alam. Back in 2017, Chattogram-based S Alam Group had taken control of the bank by acquiring shares—both directly and through proxies—from the stock market.
After the takeover, the bank saw significant loan irregularities. S Alam and its beneficiaries reportedly withdrew over Tk 700 billion in loans—also using proxy accounts.
After the political changes in August last year, a large portion of those loans turned default. Neither the principal nor the interest on these loans is being repaid, pushing the bank into a major financial crisis.
Under the supervision and intervention of Bangladesh Bank, Islami Bank has begun a gradual recovery. To support this recovery, Bangladesh Bank has granted leniency in provisioning requirements against S Alam’s massive defaulted loans. As a result, the bank did not have to set aside large amounts for loan loss provisions in the first half of this year, allowing it to record a small profit despite the overall crisis.
According to the financial report, Islami Bank allocated Tk 700 million for provisioning in the first six months of this year, compared to Tk 3.77 billion during the same period last year. This means provisioning expenses decreased by Tk 3.07 billion. However, the bank’s profit still declined significantly because the interest expenses increased several times more than the interest income.
Bank insiders say that due to Bangladesh Bank’s decision to make interest rates market-based, the interest rates on deposits have risen considerably over the past year, leading to higher costs for the bank in this area.
Additionally, after management changes in August last year, the bank focused more on mobilising deposits to overcome liquidity problems. As a result, deposits have increased, which in turn has driven up interest expenses significantly.
In a recent advertisement published in the media, Islami Bank stated that it has mobilised Tk 230 billion in new deposits over the past year, bringing its total deposits to Tk 1.77 trillion. The bank now has to pay substantial monthly interest on this huge amount of deposits, which is impacting its profitability.