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The struggling Global Islami Bank (GIB) plunged into the red in the July-September quarter this year as the new board adjusted provisions against bad loans that had not been exposed previously.
The fourth generation Shariah-compliant bank reported a loss of Tk 570 million in the quarter as opposed to a profit of Tk 456 million in the same quarter the year before, according to a stock exchange filing on Thursday.
The latest disclosure also showed that Global Islami Bank's net asset value (NAV) turned Tk 9.14 in the negative per share as of September this year. That means the bank's liabilities exceeded its assets.
The Bangladesh Bank reconstituted the board of the bank three months ago after the overthrow of Chattogram-based S Alam Group from the board following the ouster of the Sheikh Hasina-led government.
Due to corrupt lending practices, the bank's huge investment had turned sour but it had not kept adequate provisions against toxic loans.
After taking charge, the new board increased provisions from Tk 2.27 billion for the first quarter to March last year to Tk 22.51 billion for the same quarter this year. Provisions have been adjusted similarly for the second and third quarters, resulting in Tk 65 billion kept aside against non-performing loans for the nine months to September this year.
Provisions will increase further as loans to non-bank financial institutions, which have not seen any repayments either, have not yet been taken into consideration in the data adjustment.
The corrections are necessary to expose the strength and weaknesses of the bank as the previous board had kept manipulating financial results for undue benefits.
Provisions have also been revised up to Tk 19.39 billion for 2023 from Tk 2.59 billion shown by the previous board. Total provisions for 2023 should be Tk 21.98 billion, according to Thursday's disclosure.
The bank now seems to have suffered a loss of Tk 21.45 billion in 2023 whereas it had reported a profit of Tk 1.34 billion for the year.
"The management is working with the statutory auditors on these adjustments needed," said the bank in its earnings note.
An official of the bank, requesting not to be named, said the previous board had left a substantial amount of toxic loans and debts with thin chances of recovery.
"We wrote off loans that were deemed unrecoverable, leading to a significant increase in provisioning, which contributed to the losses," he explained.
What did the previous board do?
Established in 2013 as NRB Global Bank, the bank soon came under the grip of S Alam Group and was renamed as Global Islami Bank.
The bank's financial health started deteriorating after the acquisition by S Alam Group.
Chairman of the conglomerate Mohammed Saiful Alam, who had close ties to the Awami League-led government, was overly influential in the banking sector.
S Alam Group and its associated companies reportedly borrowed more than 86 per cent of the loans disbursed by GIB. The bank disbursed loans amounting to Tk 138.80 billion as of June this year.
S Alam Group took out the loans between 2013 and 2018 from the bank's branches in Chattogram via more than 50 trading companies.
No new loans were granted to the group or its affiliate companies after 2018 but the tenures of the previous loans were extended without any repayment.
On paper, the bank's defaulted loans stood at Tk 3.27 billion, only 2.36 per cent of the total outstanding credit as of June this year. But the actual amount of bad loans was much higher.
The real financial condition of the bank has now been exposed after its takeover by the new board.
2022 listing
Global Islami Bank raised Tk 4.25 billion in 2022 through the second largest IPO in the banking sector.
Soon after the listing, the bank made headlines for rescheduling large amounts of loans in violation of banking regulations and for not maintaining a capital reserve ratio due to cash crunch.
Then the lender sought liquidity support from the Bangladesh Bank to continue everyday transactions. The central bank kept giving special liquidity support to GIB until the fall of the Hasina-led regime.
GIB showed a remarkable 28 per cent year-on-year surge in profit to Tk 1.32 billion in 2021, the year before listing, while its cash flow was negative.
Negative cash flow from operations was almost double the profit earned that year. Then the year after the listing, the lender's income plunged 27 per cent year-on-year despite the addition of Tk 4.25 billion collected through IPO.
The bank's stock has been trading below the face value since the debut trading.
It closed at Tk 5.2 per share on the Dhaka Stock Exchange on Thursday, losing 1.9 per cent from the day before.