Provisions for Ananda Shipyard's bad loans have been eating up Islami Bank Bangladesh's profits as it had to set aside Tk 178 crore a year since 2013 for the shipbuilder's bad debts.

“We are not too worried now as we have been able to make a two-year provision against the loans. We have one more year to go in the three-year provision requirement for this bad debt,” MA Mannan, managing director of IBBL, told The Daily Star.

“We will be free after this year.” Ananda has not been able to sell the ships funded by the bank.

“Ships are not perishable. So Ananda may take more time to sell the ships,” said the chief executive of the bank whose profits have been eroding since 2012.

Earlier in 2007, Ananda Group received orders from German and Singaporean buyers for eight ships worth $89.4 million or about Tk 700 crore, to be delivered between September 2009 and December 2010.

The local shipbuilder failed to stick to the lead time, which made the buyers withdraw the orders in 2010.

The move put its financier -- IBBL -- in a sticky position, as it had to honour its performance bonds and refund guarantees worth $58.71 million to the buyers.

Ananda's total liabilities with IBBL now stand at Tk 534 crore, and the central bank instructed the bank to make provisions against the sum, which IBBL has duly acted on, Mannan said.

The bank's earnings per share (EPS) came down to almost half between 2012 and 2014 because of bad loans, especially of Ananda Shipyard.

The bank's EPS was Tk 4.42 in 2012, which came down to Tk 3.45 in 2013 and Tk 2.46 in 2014 -- this erosion in income has been depriving the shareholders of good dividends.

IBBL paid 32 percent dividends for 2011, 25 percent for 2012, 18 percent for 2013 and 15 percent for 2014.

In response to a query on whether IBBL is facing trouble in accepting its letters of credit (LCs) by some banks in the United States and Europe, the chief executive said the bank's data does not reflect that.

IBBL is the top bank in terms of the number of LCs issued and volume of imports, he said.

The bank facilitated imports worth Tk 31,697 crore in 2014 and issued LCs for imports worth Tk 7,985 crore in the first quarter of the current year, up by 7 percent from the same period in the previous year.