Why Islami Bank stocks soared 80% in a month

Since 6 August, Islami Bank stocks have surged by approximately 80%, reaching Tk58.7 today, making them one of the most valuable stocks in the banking sector on the Dhaka Stock Exchange (DSE).

A month-long rally has significantly boosted the market capitalisation of the country's first Shariah-based commercial bank, pushing it beyond Tk9,000 crore for the first time since 2010.

According to EBL Securities' daily market review, Islami Bank's total market capitalisation reached Tk9,450 crore on Monday, making it the eighth largest on the Dhaka bourse.

Currently, BRAC Bank tops the market capitalisation rankings for banking stocks, with a value of Tk9,963 crore.

Market analysts attribute the significant surge in Islami Bank stocks to three key factors: the bank's separation from S Alam Group, the investment by the International Finance Corporation (IFC), and existing shareholders' efforts to increase their holdings.

A market analyst said that after the fall of Hasina government, shareholders and employers demanded to remove S Alam Group from Islami Bank. As a result, the current governor of the central bank removed the nominated members of S Alam Group from the board on 25 August and appointed five new independent directors. 

Such initiatives by Bangladesh Bank under new Governor Ahsan H Mansur made investors optimistic, said the analyst.

Meanwhile, they said there is news in the market that those who are currently holding shares of Islami Bank are buying shares to increase their shareholding so that no other group can join the board of Islami Bank as like S Alam Group.

Ahsan H Mansur recently mentioned in a press briefing that discussions are underway with the IFC to acquire a 10-15% stake in Islami Bank, which could help revitalise the bank. 

"If successful, this move could restore investor confidence," SM Galibur Rahman, head of research at Shanta Securities Limited, told The Business Standard.

He acknowledged that there are risks associated with investing in the bank's shares, citing allegations that a substantial amount of loans was granted without adhering to regulations. If these loans are to default, the bank's non-performing loan ratio could rise, leading to higher provisioning and a decline in profits.

Rehan Kabir, head of research at EBL Securities, noted that there is considerable hype surrounding Islami Bank shares, with investors believing that the bank's situation will improve following its separation from S Alam Group. 

However, he pointed out that the bank's financial status has not been officially disclosed. The upcoming publication of the third-quarter financial report will provide clearer insights into the bank's condition.

In the first meeting of the new Board of Directors of Islami Bank on 27 August, it was decided to re-audit all loans taken from the bank in the last seven and a half years when it was under the control of S Alam Group, according to sources.

"An initiative has been taken to find out who has taken loans in this period, in what processes and whether these loans have proper collateral or not," an official of the bank who was present in the meeting told TBS.

In 2017, S Alam took over the Islami Bank. At that time the bank's board members and managing director were forced to resign. After that, a large part of the foreign investment institutions in the ownership sold the shares of the bank.

Besides, following the central bank's notice, the Bangladesh Securities and Exchange Commission (BSEC) has frozen the shares of Islami Bank held in the name of the institutions and individuals of S Alam Group. So that they cannot sell these shares.

The directors named in the freezing order collectively hold over 30% of the Islami Bank Bangladesh shares that were valued at Tk2,100 crore.