|| By Md. Mukhlesur Rahman: The substantial financial losses reported by Islami Bank Bangladesh PLC have triggered renewed concern across Bangladesh’s Islamic banking sector. During the first nine months of 2026, from January to September, the bank incurred a net loss of Tk 3,303 crore, compared with a profit of approximately Tk 79 crore during the corresponding period of the previous year. The situation deteriorated further in the July–September quarter alone, when the bank recorded a loss of Tk 1,976 crore. These figures were reported by The Daily Ittefaq on 30 October, based on the bank’s unaudited financial statements for the third quarter.Once regarded as a pioneer of Islamic banking in Bangladesh and one of the country’s strongest financial institutions, Islami Bank’s dramatic financial deterioration is not merely a matter of corporate profit and loss. It involves the interests of millions of depositors, investor confidence, the stability of the banking sector and the credibility of Islamic finance in Bangladesh. This situation cannot be dismissed as a temporary financial setback. An urgent investigation into its underlying causes, followed by effective institutional reforms, is essential.According to the bank’s unaudited third-quarter financial statements, its standalone earnings per share (EPS) for the first nine months of 2026 stood at a loss of Tk 20.51, compared with earnings of Tk 0.49 during the same period last year. On a consolidated basis, EPS recorded a loss of Tk 20.41, against earnings of Tk 0.62 in the corresponding period of the previous year.The figures for the July–September quarter alone also reveal a significant deterioration. During this period, the bank recorded standalone and consolidated losses per share of Tk 12.27 and Tk 12.24, respectively. In the same quarter of the previous year, it had earned Tk 0.15 and Tk 0.20 per share, respectively.The bank’s net asset value has also declined substantially. As of 30 September 2026, its standalone net asset value stood at Tk 3,584 crore, down from Tk 6,963 crore during the corresponding period of the previous year. On a consolidated basis, net asset value fell from Tk 7,161.06 crore to Tk 3,806.05 crore. Net asset value per share declined from Tk 43.25 to Tk 22.27 on a standalone basis and from Tk 44.48 to Tk 23.64 on a consolidated basis.Even more concerning is the deterioration in net operating cash flow per share. During the first nine months of 2026, the standalone figure turned negative at Tk 36.54, compared with a positive Tk 11.89 in the same period of the previous year. On a consolidated basis, it fell from a positive Tk 12.44 to a negative Tk 36.12.These figures clearly indicate significant pressure on the bank’s earnings, asset base and operating cash flow. However, net asset value must not be confused with total assets. Similarly, the results of unaudited financial statements should not be treated as equivalent to final audited accounts.According to the media report, several factors have contributed to the bank’s losses, including a high level of non-performing investments, alleged misappropriation of substantial investment funds through various entities associated with the bank, declining income from investments and rising profit expenses against deposits.Following the takeover of the bank’s control by the S Alam Group in 2017, allegations emerged in various media reports that nearly Tk 1 lakh crore had been siphoned off through different means, including the use of entities operating under different names. According to these allegations, a substantial portion of the funds subsequently turned into non-performing investments. However, the actual amount involved, the responsibilities of the individuals and institutions concerned, and the present whereabouts of the funds must be established through an impartial investigation and audit.Following the political changes of 5 August 2024, control of the bank underwent changes. Subsequently, initiatives were taken to operate it through independent directors, and media reports have stated that restructuring activities are currently being conducted under the direct supervision of Bangladesh Bank. Nevertheless, the reasons behind the continued deterioration of the bank’s financial position, even after these changes, require serious examination.It would be unreasonable to place the entire responsibility for past irregularities directly on the present management. Equally, however, the current management cannot avoid accountability by attributing the crisis solely to its predecessors. Transparent information must be disclosed regarding progress in financial recovery, measures taken to recover non-performing investments and the effectiveness of initiatives to retrieve misappropriated funds.Changing the board of directors, restructuring administrative arrangements or appointing a new management team will not, by themselves, resolve the crisis. What is required is effective corporate governance, professional management, independent internal auditing, strong risk management and transparency in decision-making.Accountability must be established at every stage of the bank’s investment process, including investment approval, collateral valuation, disbursement, monitoring and recovery of non-performing investments. An effective control mechanism must be established to prevent the bank’s funds from being used to serve the interests of influential individuals, business groups or directors.At the same time, the recruitment of qualified, honest, competent and experienced professionals for key positions must be ensured. If political or personal loyalty takes precedence over professionalism in recruitment, promotion and the allocation of responsibilities, the institution’s long-term prospects will inevitably suffer.A bank’s greatest asset is not merely its fixed and financial properties; it is the trust of its depositors. Ordinary people deposit their savings in banks expecting security and a legitimate return. In the case of Islamic banks, religious conviction and expectations of Shariah-compliant transactions also play an important role in depositors’ decisions.When income from investments declines while profit expenses against deposits continue to rise, the bank’s financial balance is naturally disrupted. This is a fundamental principle of financial management. However, the consequences of such mismanagement must never be imposed on ordinary depositors. Ensuring the repayment of deposits, transparency in financial accounts and the legitimate rights of depositors must receive the highest priority in any restructuring plan.Mudarabah deposits in Islamic banking are governed by specific principles concerning the determination and distribution of profits. Actual investment income, profit-sharing policies and the terms of relevant contracts must be properly observed. Financial difficulties arising from dishonesty, inefficiency or negligence on the part of those responsible cannot justify violating depositors’ rights or concealing the bank’s actual financial condition from them.The fundamental philosophy of Islamic banking is not limited to interest-free transactions. It also encompasses justice, trustworthiness, equitable distribution of risk and profit, productive utilisation of wealth and social welfare. If a bank’s funds are used to serve the interests of influential groups, substantial amounts are diverted through irregularities under the guise of investment, and depositors’ interests are neglected, such practices run counter to the fundamental ethical principles of Islamic finance.This also raises questions about the effectiveness of the Shariah supervisory framework. The responsibility of a Shariah Supervisory Board should not be confined to approving financial products and contractual structures. It must also monitor how faithfully the bank’s actual operations adhere to Shariah principles. The board must be free from pressure exerted by management or influential interest groups and must have access to the necessary information, audit facilities and monitoring mechanisms.Shariah compliance and corporate governance cannot be treated as separate or unrelated matters. Without honesty, transparency and accountability in a bank’s operations, merely offering products and contracts labelled as Shariah-compliant cannot achieve the true objectives of Islamic banking. Shariah auditing must therefore be strengthened, and corrective measures must be made mandatory whenever irregularities are identified.Those directly or indirectly responsible for the bank’s financial collapse must be identified and held accountable in accordance with the law. However, this process must not be reduced to political retaliation, personal interests or selective action against particular individuals. Investigations must be impartial, evidence-based and transparent.The actual amount of funds allegedly transferred through irregular means, their destinations, the beneficiaries and the assets associated with them must be thoroughly investigated. Effective legal initiatives should be undertaken to identify and recover funds and assets, both at home and abroad. Coordination among the Anti-Corruption Commission, Bangladesh Bank, financial intelligence agencies and law enforcement authorities is essential in this regard.At the same time, a realistic strategy must be adopted to recover non-performing investments. Not all defaulted investments should be treated alike. It is essential to distinguish between customers facing genuine business difficulties, wilful defaulters and those who have misappropriated funds through fraudulent means. Genuine entrepreneurs facing temporary business difficulties may be offered reasonable restructuring or rescheduling facilities. However, strict legal action must be taken against wilful defaulters and those involved in financial fraud and misappropriation.The crisis at Islami Bank Bangladesh PLC should also serve as an important warning to other Islamic banks in the country. The mere inclusion of the word ‘Islamic’ in a bank’s name does not automatically mean that it upholds the ideals of Islamic finance. The credibility of Islamic banking must be established through actual operational practices, the quality of investments, Shariah compliance, good governance and the protection of depositors’ rights.In Bangladesh, a country with a predominantly Muslim population, the prospects for Islamic banking are considerable. A significant section of the population is interested in Islamic banking, considering not only religious values but also financial security and service quality. This confidence can provide a strong foundation for the sustainable development of the sector. However, irregularities, weak management and a lack of accountability in some institutions have seriously damaged the reputation of the entire sector and called into question the widely held perception of the superiority of Islamic banking.Therefore, it is necessary not only to restore the troubled bank but also to establish a stronger regulatory and supervisory framework for the entire Islamic banking sector. The independence of Shariah supervisory arrangements, coordination of Shariah standards at the central level, regular Shariah audits and transparency in the financial disclosures of banks must be ensured. At the same time, Islamic banks should move beyond imitating conventional banking practices and strengthen partnership-based investments, productive financing and their connection with genuine economic activities.Addressing the crisis in Islamic banking requires institutional reforms based on facts, professional competence, ethical principles and effective governance rather than emotion or publicity. Visible progress must be ensured in identifying the actual causes of the bank’s massive losses, holding those responsible accountable, recovering misappropriated funds and safeguarding depositors’ interests.It must be remembered that financial losses can be measured in monetary terms, but a crisis of public confidence is far more difficult to overcome. The greatest strength of Islamic banking does not lie in its name; rather, it lies in its genuine commitment to justice, trustworthiness and the fundamental principles of Shariah. Only by translating these principles into actual institutional practices can public confidence in Islamic banking be restored.