Until 2016, Islami Bank was the most profitable local bank, with financial health that was the envy of most banks.
Its success was built on a strong foundation of depositor confidence, low levels of defaulted loans, dominance in the remittance market, an extensive rural network, prudent governance and robust financing for small and medium enterprises (SMEs).
These strengths enabled the bank to develop one of the largest customer bases in the country and maintain a healthy balance sheet for years.
But its fortunes changed after the bank’s control went to the Chattogram-based conglomerate S Alam Group in 2017.
The lender, which was a pioneer in Shariah banking in Bangladesh, saw its loan portfolio become concentrated to S Alam Group. And these loans started to become irregular.
But the real state of the bank’s health was concealed, so it appeared that it was making profits. Even in 2023, its profit was above Tk 600 crore.
After the toppling of the Awami League-led government, the true picture came to light: it had one of the highest volumes of bad loans and was suffering from a massive capital shortfall.
At the end of 2025, Islami Bank’s total loans stood at Tk 186,097 crore, while bad loans amounted to Tk 90,413 crore.
The bank’s required provisioning stood at Tk 92,537 crore, against which the bank had provided only Tk 7,922 crore.
As a result, there remained a total provisioning shortfall of Tk 84,615 crore for investments and other assets.
The non-recognition of the shortfall in provisions had consequential impacts such as the overstatement of assets, net profit and equity, and understatement of liabilities.
However, Bangladesh Bank granted permission to the bank to finalise its financial statements for 2025 without incorporating the Tk 84,615 crore adjustment for provisioning due to the bank’s insufficient profit.
The situation is so bad that its latest auditor commented that “the going concern assumption of the bank is dependent on the ongoing policy support of Bangladesh Bank”, meaning the bank would collapse without the central bank’s policy support.
To fulfil the Basel III requirement, the regulatory capital shortfall of the bank would have been Tk 93,960 crore considering its defaulted loans.
As per BB’s order, the bank’s total exposure to a single borrower or group is restricted to 25 percent of its capital.
However, based on information provided by the bank, multiple exposures, including those to S Alam Group, were found to have exceeded the regulatory thresholds significantly.
The outstanding loans of four companies under the S Alam Group stand at above Tk 40,500 crore, according to the bank’s financial statements.
The worst of all, there is no sign of improvement in the bank’s health so far.
Despite the central bank’s policy support, the bank incurred a loss of Tk 288 crore in the first three months of 2026. A year earlier, it logged in a profit of Tk 29 crore.
Its lone positive indicator is deposits, which have kept the bank alive so far. In the last three months, its deposits rose by Tk 4,057 crore.
Although depositors are still getting back their deposits from the bank, the gains of its general shareholders have taken a hit.
Once, the bank paid dividends of 25 to 35 percent, but these dropped to zero over the last two years, and there is no hope of receiving anything in the near future.
The contrast is stark. A bank that once symbolised stability, profitability and prudent banking now finds itself battling for survival.
Whether Islami Bank can reclaim its former stature will depend largely on its ability to recover bad loans, restore capital adequacy, strengthen governance, and, above all, preserve the confidence of millions of depositors who remain its last and strongest line of defence.
