The financial stability of Islami Bank Bangladesh PLC, the nation’s largest private sector lender, has come under intense scrutiny following the release of its audited financial statements for 2025. The report reveals a profound surge in classified loans, which rose by 44% to a record-breaking Tk94,322 crore. This figure represents the highest volume of non-performing loans (NPLs) ever documented by a single financial institution in the history of the Bangladeshi banking sector.
Unprecedented Growth in Defaulted Debt
The escalation of classified loans has fundamentally altered the bank’s balance sheet. By the conclusion of 2025, bad debt accounted for 51% of the bank’s total loan portfolio, a significant deterioration from the 42.36% recorded in 2024. This crisis carries national implications; data from Bangladesh Bank indicates that total classified loans across the entire banking industry stood at Tk5.57 lakh crore at year-end. Consequently, Islami Bank alone is responsible for approximately 17% of the total defaulted debt within the country’s financial system. For comparison, Janata Bank holds the second-highest volume of classified loans, totalling Tk72,804 crore.
Senior bank officials have attributed this unprecedented spike to the identification of “hidden” bad loans associated with the S Alam Group. According to management, previous leadership had systematically obscured these irregularities. The current transparency is a result of efforts by the new management to disclose the actual state of the bank’s assets.
Audit Findings and Provisioning Shortfall
The 2025 audit, conducted by Mahfel Huq and Co, Chartered Accountants, resulted in a “qualified opinion,” highlighting a massive deficit in the bank’s provisioning. Under regulatory requirements, the bank was mandated to maintain a total provision of Tk92,537.56 crore against its bad investments and assets. However, the lender maintained a provision of only Tk7,922.41 crore, resulting in a monumental shortfall of Tk84,615.15 crore.
The auditors cautioned that the failure to recognise this shortfall led to a significant overstatement of the bank’s assets, net profit, and equity, while liabilities were considerably understated.
Financial Health and Capital Adequacy (2025)
| Metric | Required / Standard | Reported Value | Actual with Adjustments |
| Classified Loans | N/A | Tk94,322 crore | Tk94,322 crore |
| Provisioning | Tk92,537.56 cr | Tk7,922.41 cr | Shortfall: Tk84,615.15 cr |
| Regulatory Capital | Tk19,200.91 cr | Tk9,855.19 cr | Shortfall: Tk93,960.92 cr |
| Capital Ratio (CRAR) | 12.50% | 6.42% | Negative |
| Net Profit | N/A | Tk136 crore | Loss: Tk84,507.83 cr |
Concerns Over “Going Concern” Status
A critical component of the audit report is the evaluation of the bank’s ability to continue as a “going concern.” The auditors stated that the financial statements were prepared under the assumption of continued operation only due to extraordinary regulatory forbearance provided by the central bank. Without the ongoing policy support of Bangladesh Bank, the bank’s operational viability would be in immediate jeopardy.
In terms of capital adequacy, the bank’s position is described as precarious. The required capital based on Risk-Weighted Assets (RWA) was Tk19,200.91 crore, yet the bank reported only Tk9,855.19 crore. While this suggests a shortfall of Tk9,345.72 crore, the auditors clarified that if the Tk84,615 crore provision deficit were fully integrated, the actual regulatory capital shortfall would reach Tk93,960.92 crore. Furthermore, while the bank reported a technical net profit of Tk136 crore, the audit noted that without central bank intervention, the lender would have incurred an aggregate loss of Tk84,507.83 crore for the year.
Major Exposure and Market Reaction
The primary driver of the bank’s financial distress remains its high exposure to the S Alam Group. Major identified borrowers include:
S Alam Vegetable Oil: Tk14,899 crore
S Alam Super Edible Oil: Tk12,983 crore
S Alam Steels and Refined Sugar Industries: Tk10,394 crore
Due to its diminished core performance—evidenced by a 40% plunge in net investment income—Islami Bank declared no dividend for the second consecutive year. This led to the bank being downgraded to the ‘Z’ (junk) category on the stock exchange. Currently, approximately 83% of the bank’s shares, linked to the S Alam Group, have been confiscated following central bank orders, while the share price remains at the floor level of Tk32.60. On 28 April 2026, Bangladesh Bank directed the management to submit a board-approved, time-bound action plan to address the deficit.