Islami Bank has sought Tk6,000 crore in equity investment from the government or state-owned institutions, a move that could give the government a 78.8% stake in the country’s largest private commercial bank and control over its ownership and management.

The bank has proposed issuing 600 crore new shares at a face value of Tk10 each through private placement to raise its paid-up capital from Tk1,609.99 crore to Tk7,609.99 crore.

On 4 April, the bank submitted its “Capital Restoration Plan 2027-2033” to the Bangladesh Bank, proposing the share issuance to shore up its capital and strengthen its financial position.

In response, Bangladesh Bank’s Banking Regulation and Policy Department (BRPD) sent a letter to the secretary of the Financial Institutions Division on 9 November.

It said Islami Bank wants to raise its paid-up capital by issuing 600 crore additional ordinary and sought equity investment from the government or government institutions.

However, the central bank said the decision on strategic government participation in a bank’s capital rests with the government. It therefore sought to know whether the government would agree to the proposal.

A senior Islami Bank official told TBS that they had sought the investment to prevent former owners from regaining influence through the purchase of newly issued shares.

“If these private placement shares are opened to private-sector investors, previous owners would get an opportunity to buy them back,” the official said, on condition of anonymity.

He said government investment would reduce capital shortfall and help it meet regulatory capital requirements. The fresh share issuance would also dilute the ownership stakes of S Alam Group-linked shareholders, further reducing their influence over the bank.

“If the bank’s financial position improves and its recovery process succeeds in the future, the government will be able to sell these shares to general investors,” he added.

Mansur questions government ownership

Former governor Ahsan H Mansur criticised the proposal, saying it was the wrong approach.

“Governments across the world have withdrawn from the banking sector, while we are moving in the opposite direction. The inefficiency of government ownership is evident from the condition of state-owned banks,” he told TBS.

“No bank becomes better because the government takes it over. Islami Bank could lose whatever reputation it still has if the government becomes its majority shareholder,” he said.

He warned that the Tk6,000 crore investment could be squandered within a few years, forcing the government to inject more funds.

Instead, Mansur suggested seeking investment from the bank’s former foreign shareholders or attracting new foreign investors. Its previous investors included the Islamic Development Bank, Dubai Islamic Bank and Kuwait Finance House.

He also called for investment from domestic private-sector individuals and institutions, backed by stronger regulatory oversight.

Fahmida Khatun, distinguished fellow at the Centre for Policy Dialogue (CPD), told TBS that the proposal requires very careful consideration.

“The decision should be based on an assessment of the bank’s capital position and asset quality. Bangladesh Bank would also need to play an active role in restoring and sustaining the bank’s financial strength,” she added.

Ownership under court seizure

During the four-party alliance government’s tenure (2001-2006), the bank was controlled by leaders and supporters of Jamaat-e-Islami.

Jamaat-linked individuals returned to its board during the interim government, but the bank’s then chairman and managing director were forced to resign following the February elections. A BB-appointed administrator is now performing the board’s functions.

During the Awami League government, S Alam Group and 24 affiliated entities acquired 131.35-131.89 crore shares, equivalent to 81.59%-81.92% of the bank’s total shares. These shares are now frozen under court orders. The remaining 18.08%-18.41% is held by general and institutional investors.

Mounting losses and capital shortfall

The proposed government investment comes as Islami Bank grapples with mounting losses, defaulted loans and a massive provisioning shortfall.

The bank posted a net loss of Tk3,303 crore after tax in January-September, against a profit of Tk79 crore in the same period last year. Its July-September loss stood at Tk1,976 crore.

At the end of September, its outstanding loans totalled Tk1,81,860 crore, of which Tk1,00,600 crore had turned defaulted, according to Bangladesh Bank data cited in the proposal. The bank also faced a provisioning shortfall of Tk85,886 crore.

-The Business Standard