Islami Bank waxes image amidst headwinds

Muhid Hasan :
Islami Bank Bangladesh, first generation bank that has the largest customer base , is undertaking efforts to restore its past glory.

Despite maintaining a significant market share of over 8percent and a vast customer base of 23 million, the bank however has been grappling with financial hurdles in recent times.

The challenges included liquidity shortfalls, disruptions in financial transactions, struggles to meet cash reserve ratios set by the central bank, irregularities in lending practices, and departures from leadership positions.

These issues, which clashed with the bank’s previous image of strength and stability, have been raising concerns among economists.

Given Islami Bank’s extensive customer base, specialists have emphasised the potential for a wider economic crisis if these issues are not addressed effectively. Internal reports indicate that the bank faced a severe cash flow deficiency in 2022, as deposits dropped by 17,783 crore taka.

However, amidst these obstacles and a turbulent banking environment, Islami Bank has shown signs of progress. The bank’s total deposits surpassed 1,53,000 crore taka in 2023, reflecting an 8.8percent increase over the previous year.

Furthermore, the bank successfully mobilised fresh deposits of 12,412.1 crore taka, with cost-free deposits experiencing a surge of around 29percent to reach 21,030.6 crore taka, according to their 2023 annual report.

The report also highlights growth in investments across various sectors. By the end of 2023, the bank’s general investments had reached 1,60,026 crore taka, representing a year-on-year increase of 9.5percent.

This growth was observed in business development, agriculture, transportation, and industry, contributing roughly 9percent of the nation’s total deployed funds.

Islami Bank holds a notable position in the SME sector, with investments reaching 32,377 crore taka. This constitutes 22.68percent of the bank’s total investment portfolio and 12percent of the banking industry’s total SME investment. The bank’s 2023 report indicates a 7.10percent market share in agricultural investments for the last fiscal year.

While the bank demonstrates progress, challenges remain. The ratio of non-performing loans (NPLs) to total loans stood at 9.93percent in September 2023.

The annual report also reveals distressed assets (written off, non-performing, and rescheduled loans) reached 3.78 lakh crore taka at the end of 2022, translating to roughly 27percent of the bank’s total assets.

The bank’s total regulatory capital reached 10,837.7 crore taka by the end of 2023, reflecting an increase of 563.9 crore taka from the previous year.

Furthermore, Islami Bank has maintained its leading position in remittance collection for an impressive 16 consecutive years. Notably, in 2023 alone, IBBPLC facilitated remittance inflows of $5 billion, representing a significant 23percent share of the country’s total remittance earnings for that year.

The bank’s profitability has also shown signs of recovery. In 2023, Islami Bank’s operating profit reached 2,100.6 crore taka, demonstrating a 238.4 crore taka increase compared to the prior year.

While net profit after tax stood at 611.4 taka in 2023, this figure marks the highest level since 2019, indicating positive progress.
Islami Bank’s annual report highlights its commitment to shareholder value.

The bank’s total shareholder equity reached 7,119.3 crore taka at the end of 2023, reflecting a 4.45percent increase or 303.1 crore taka year-on-year. This growth is further solidified by the bank’s declaration of a 10percent cash dividend for shareholders in 2023.

The bank’s creditworthiness has also received positive recognition. Emerging Credit Rating Limited (ECRL) has continuously awarded Islami Bank a commendable “AAA” rating in the long-term category and an “ST-1” rating in the short-term category for the past six years. Additionally, the UK-based financial magazine “The Banker” has positioned IBBPLC among the “Top 1000 Global Banks” since 2012, with a ranking of 915th in 2023.

Islami Bank’s trajectory suggests a course correction and a focus on regaining its past standing. While the bank navigates its path forward, addressing existing challenges alongside its demonstrated improvements will be crucial for securing long-term stability and regaining the trust of stakeholders.

Managing Director and CEO Mohammed Monirul Moula said, “We acknowledge the need to prioritise Sharia values and translate them into actionable strategies to ensure the bank’s long-term success.”

Sustaining financial resilience, the managing director and CEO of IBBL identified some strategic focuses for the days ahead, including efficient fund management, effective resource utilisation, caution in new project investment, ensuring strong monitoring and follow-up for timely recovery, re-shaping distressed assets, balanced expansion, and winning people’s trust.

Islami Bank Bangladesh was established in 1983. The bank’s paid-up capital is Tk 1,609.99 crore, and it has 394 branches, 249 sub-branches, and 2,771 agent banking outlets across the country.