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IFIL faces Tk155cr investment provision shortfall

Bangladesh Bank grants a five-year deferral
Staff Correspondent
10 Jul 2024 20:50:51 | Update: 10 Jul 2024 23:57:40
IFIL faces Tk155cr investment provision shortfall

The financial landscape of Islamic Finance and Investment Limited (IFIL) has come under scrutiny following the latest auditor’s report, which includes a “Matter of Emphasis” paragraph addressing significant concerns.

This emphasis highlights critical issues related to the company’s financial provisions and accounting practices for the year that ended on December 31, 2023.

According to a quick summary report by Bangladesh Bank (BB) dated June 14, 2024, IFIL had a substantial shortfall in its investment provisions amounting to Tk 132.06 crore as of December 31, 2023.

In an attempt to address this shortfall, the company set aside additional provisions based on qualitative judgment. However, this action resulted in an increased current shortfall of Tk 155.18 crore, according to information published on the Dhaka Stock Exchange website on Wednesday.

Recognising the gravity of the situation, IFIL sought a deferral from BB to manage this shortfall over an extended period. This request was granted, providing the company with a five-year deferral facility as per a letter dated June 25, 2024.

During the current year, IFIL managed to adjust Tk 31.04 crore of the shortfalls, reducing the outstanding balance to Tk 124.15 crore, which remains to be adjusted in the coming years.

A deeper look into IFIL’s investment portfolio reveals further concerns.

As of December 31, 2023, the company’s total investments, encompassing loans, leases and advances stood at Tk 1,075.26 crore. Of this, Tk 367.71 crore was classified as investment, and a staggering Tk 297.05 crore or 80.78 per cent of that amount was categorised as non-performing loans (Bad and Loss).

This high percentage of non-performing loans within the classified investments presents a significant risk to the company’s financial health and stability.

The auditor’s report also pointed out a notable discrepancy in the recording of gratuity expenses.

IFIL recorded a gratuity expense of Tk 85 lakh under Salary and Allowance, with the corresponding provision listed under salary payable within liabilities for expenditure.

Contrary to this standard, IFIL has not applied the actuarial valuation method, even though the company maintains a gratuity fund for its employees under a defined benefit plan. The failure to adhere to this prescribed valuation method raises questions about the accuracy and compliance of the company’s financial reporting practices.

Performance of Q1, 2024

IFIL recently announced its financial results for the first quarter of 2024, revealing a significant decline in earnings per share (EPS) and net asset value (NAV), though there was an improvement in net operating cash flow per share (NOCFPS).

For the January-March period of 2024, IFIL reported a loss per share of Tk 1.62, a substantial decrease from the loss of Tk 0.06 per share recorded in the same quarter of the previous year.

Despite the unfavourable EPS, there was a notable improvement in the company’s NOCFPS.

The NOCFPS was negative Tk 0.71 in January-March 2024, an improvement compared to the negative Tk 1.83 recorded in the corresponding period of 2023.

However, IFIL’s NAV per share experienced a decline, standing at Tk 10.80 as of March 31, 2024, down from Tk 12.42 as of December 31, 2023.

This reduction in NAV per share reflects the company's diminished value over the first quarter of the year.