A Tk 60-billion government equity injection into the scam-hit Islami Bank Bangladesh is under consideration to gain public control of the private commercial lender, sources say.
The regulatory move comes as the lender grapples with massive financial losses, alleged fund embezzlement, non-performing investments and a severe erosion of its capital base, said central-bank sources.
Through a letter sent to the Financial Institutions Division (FID) on November 9, the central bank sought to know whether the government would agree to support the proposed capital enhancement of the private commercial bank.
The Banking Regulation and Policy Department of the Bangladesh Bank (BB) sent the letter to the FID, referring to a proposal submitted by Islami Bank Bangladesh PLC on April 4 this year.
Under the proposal, the bank wants to raise its paid-up capital to Tk 76.10 billion from the existing Tk 16.10 billion through the issuance of 6.0 billion ordinary shares at a face value of Tk 10 each.
The proposed shares, worth Tk 6.0 billion, would be placed privately with the government and/or eligible government institutions as strategic equity investors, mentioned the letter.
The scam-hit bank has also submitted a Capital Restoration Plan for 2027-2033 as part of its proposal, according to the BB.
The proposed capital feeding would account for around 79 per cent of the bank’s enlarged paid-up capital, potentially giving the government or participating state institutions a controlling stake in the bank.
The central bank has said the decision on the government’s strategic participation in the capital of a bank rests solely with the government. It has, consequently, sought the FID’s views as to whether the government is willing to support the proposed investment.
However, the central bank’s letter did not specify the amount of investment to be made by the government, the institutions that might participate in the proposed share subscription or the timeframe for a government decision.
The proposal, if approved, could significantly change the ownership structure of Islami Bank through a substantial state-backed equity investment.
Contacted, an official of the FID said, “We have received the proposal and working on the issue.”
The proposed intervention comes against the backdrop of years of alleged financial irregularities involving influential business interests, particularly parties connected to the embattled S Alam Group, which took the bank’s control in 2017.
Fund embezzlement by connected parties and large legacy exposures have emerged as major reasons behind the bank’s deteriorating financial condition.
Its latest disclosures identify these irregularities as key contributors to the continued rise in classified and non-performing investments, restricting income generation and weakening cash flow and profitability due to irregular repayments.
The bank’s financial disclosures also point to lower investment income, rising deposit-related expenses and a shrinking deposit base.
Allegations of large-scale fund diversions during the S Alam Group’s period of influence have intensified scrutiny of past lending decisions and the beneficiaries of major investments.
According to unaudited financial statements, Islami Bank incurred a consolidated loss of Tk 32.86 billion during January-September period of 2026, compared to a profit of approximately Tk 1.0 billion in the same period a year earlier.
Consolidated loss per share stood at Tk 20.41, against earnings per share of Tk 0.62. The July-September quarter alone recorded a loss of approximately Tk 19.70 billion.
Consolidated net asset value per share fell to Tk 23.64 at the end of September from Tk 44.52 at the end of December 2025, reflecting the growing burden of non-performing investments and difficulties recovering funds from troubled exposures.
According to its 2025 annual report, the bank faced a required provisioning amount of Tk 925.37 billion but maintained only Tk 79.22 billion, leaving a shortfall of Tk 846.15 billion under the reported calculation.
Its capital-to-risk-weighted-assets ratio stood at 6.42 per cent on a standalone basis and 6.60 per cent on a consolidated basis, far below the regulatory requirement of 12.50 per cent. The proposed investment could strengthen the bank’s capital position and give the government a significant ownership stake, depending on the transaction’s structure and terms.
However, the shareholding arrangement, valuation, funding source and implementation mechanism remain independently unconfirmed.
The proposal also raises questions about using taxpayers’ money to recapitalise a bank whose financial difficulties are linked to alleged large-scale irregularities and unrecovered investments, a retired high official said.
Meanwhile, the bank‘s board has decided to increase its authorised capital from Tk 20 billion to Tk 100 billion.
Disclosed on November 5, the proposal requires approval from the central bank, other regulators and shareholders at an extraordinary general meeting. While this would expand the bank’s capacity to issue shares, it would not automatically inject fresh funds or resolve the existing capital shortfall.
A fresh equity injection may offer temporary relief but cannot independently address underlying governance and asset-quality problems.
The government and the central bank must also ensure transparent valuation, shareholder protection, recovery of diverted funds and accountability for those involved in financial irregularities.
Source: https://thefinancialexpress.com.bd/economy/tk-60b-govt-equity-injection-likely-for-banks-revival
