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Islami Bank Bangladesh PLC has sought Tk6,000 crore in equity investment from the government or state-owned institutions, a move that could make the government the majority shareholder with a 78.8% stake in the country’s largest private commercial bank.

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

The proposal was included in the bank’s “Capital Restoration Plan 2027-2033”, submitted to Bangladesh Bank on 4 April to address its capital shortfall and strengthen its financial position.

Following the submission, Bangladesh Bank’s Banking Regulation and Policy Department (BRPD) wrote to the secretary of the Financial Institutions Division on 9 November, seeking the government’s position on the proposed investment.

In its letter, the central bank said Islami Bank wanted to issue 600 crore additional ordinary shares and secure equity investment from the government or its institutions. It noted that the decision on strategic government participation in a bank’s capital rests with the government and sought its consent on the proposal.

A senior Islami Bank official said the bank had sought state investment partly 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, requesting anonymity.

He said government investment would help reduce the bank’s capital shortfall and meet regulatory requirements. The fresh share issuance would also dilute the stakes of shareholders linked to S Alam Group, further limiting their influence.

The official added that if the bank’s financial position improves and its recovery efforts succeed, the government could eventually sell its shares to general investors.

Experts question state ownership

The proposal has drawn criticism from former Bangladesh Bank governor Ahsan H Mansur, who described government ownership as the wrong approach to restoring the bank.

He argued that governments worldwide have been reducing their involvement in the banking sector, while Bangladesh would be moving in the opposite direction. He also pointed to the performance of state-owned banks as evidence of the challenges associated with government ownership.

Mansur warned that the proposed Tk6,000 crore investment could be exhausted within a few years, potentially requiring further government funding. He also said a government majority stake could affect Islami Bank’s existing reputation.

Instead, he suggested seeking investment from former foreign shareholders, including the Islamic Development Bank, Dubai Islamic Bank and Kuwait Finance House, as well as attracting new foreign and domestic private-sector investors under stronger regulatory oversight.

Fahmida Khatun, distinguished fellow at the Centre for Policy Dialogue (CPD), said the proposal required careful consideration.

She said any decision should be based on a thorough assessment of the bank’s capital position and asset quality, while Bangladesh Bank would need to play an active role in restoring and sustaining its financial strength.

Ownership structure under legal restrictions

Islami Bank’s ownership has undergone several changes over the years. During the 2001-2006 tenure of the four-party alliance government, the bank was controlled by leaders and supporters of Jamaat-e-Islami.

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

During the Awami League government’s tenure, S Alam Group and 24 affiliated entities acquired between 131.35 crore and 131.89 crore shares, equivalent to 81.59%-81.92% of the bank’s total shares.

Those shares are now frozen under court orders. The remaining 18.08%-18.41% is held by general and institutional investors.

Losses and defaulted loans deepen crisis

The proposed capital injection comes as Islami Bank faces mounting losses, a surge in defaulted loans and a substantial provisioning shortfall.

The bank reported a net loss of Tk3,303 crore after tax in January-September, compared with a profit of Tk79 crore in the same period last year. Its losses reached Tk1,976 crore in the July-September quarter alone.

At the end of September, the bank’s outstanding loans stood at Tk1,81,860 crore, of which Tk1,00,600 crore had become defaulted, according to Bangladesh Bank data cited in the proposal.

The bank also reported a provisioning shortfall of Tk85,886 crore, highlighting the scale of the financial challenges it faces.