Islami Bank, the largest and most profitable bank in the country, has seen a significant fall in its half-yearly profit, only months after bringing major changes to its management.
The bank made a profit of Tk 161.27 crore in January-June this year, down by 52.73 percent from the same period last year. Its higher provision for rising default loans affected the profit.
According to the bank, its default loan soared by 35.45 percent to Tk 3,528 crore at the end of June, up from Tk 2,360 crore in June last year.
The bank's default loan stood at 5.29 percent of its total loan portfolio at the end of June, which was 3.83 percent a year ago, bank data shows.
“Default loan of the bank rose as some big businesses failed to pay installments again after rescheduling their loans last year,” Islami Bank Chairman Arastoo Khan told The Daily Star yesterday.
Other key financial indicators of the bank declined also following the changes in its management.
Against this backdrop, Bangladesh Bank has asked Islami Bank to formulate a work plan to improve its financial performance by December this year, said BB sources.
The bank went through changes in its key management positions in the first five months of the current year after several little-known local companies had bought large amount of shares.
Its new directors got involved in conflicts over some management decisions. At one stage, two independent directors resigned from the board in May.
Data shows the bank had a provision of Tk 352.29 crore in June, up from Tk 175.95 crore in the corresponding month the previous year.
“It's true that our financial performance has deteriorated, but it's temporary,” said the chairman of Islami Bank.
He expressed optimism the bank's profitability would pick up by the end of the year.
The new management in April declared 10 percent cash dividend for 2016, lowest in the bank's recent history. The declaration disappointed capital market investors.
The price of Islami Bank shares fell by over 20 percent (from Tk 43 to Tk 34) in the first week of April.
Yesterday, each Tk 10 share of the bank was traded at Tk 34.70 at the Dhaka Stock Exchange.
The bank lent aggressively in the last six months, but its deposit growth was slow. Its advances to deposits ratio was 93 percent in June, which was beyond the authorised limit of 90 percent.
The advances to deposits ratio measures loans (advances) as a percentage of deposits.
The bank disbursed loans of Tk 5,031 crore in January-June this year compared to Tk 3,521 crore in the corresponding period a year ago.
It received deposits of Tk 2,298 crore during the six months, down by 30 percent from Tk 3,310 crore in the same period last year.