Bangladesh Bank (BB) has extended a total of Tk 12,500 crore in emergency funds to three beleaguered banks to dress up their balance sheet ahead of the year's end. 

On December 30, National Bank, Islami Bank Bangladesh and AB Bank took the fund on an overnight basis at the standing lending facility rate of 11.50 percent, The Daily Star has learnt from central bank officials.

National Bank took Tk 6,000 crore, Islami Bank Bangladesh received Tk 5,500 crore and AB Bank received Tk 1,000 crore against "demand promissory note" as the banks have no securities to offer as collateral.

Apart from the overnight Tk 1,000 crore, AB Bank also received Tk 200 crore as long-term liquidity support.

A demand promissory note is a legally binding document between a borrower and a lender. With this agreement, the borrower promises to repay the money whenever the lender demands it.

The BB accepts a demand promissory note when a bank does not have available bills and bonds to provide as collateral.

The central bank officials said the extraordinary facility was extended to help the banks meet the shortfall in their mandatory cash and liquidity holdings and show a tidy balance sheet for the year.

If the banks show a shortfall in their regulatory cash and liquidity holdings in their balance sheets at the year's end, depositor confidence may take a big hit, they added.

After making the balance sheet for the year's end, the central bank deducted the fund from their accounts which were maintained with the central bank.

National Bank, the country's first private sector commercial lender with a prosperous past, became a losing concern due to massive loan irregularities, lack of good governance and conflict among directors.

During the 16-year tenure of the previous Awami League government, business conglomerate Sikder Group dominated the bank's board of directors.

After the August 5 political changeover, Abdul Awal Mintoo, a businessman and vice-chairman of Bangladesh Nationalist Party (BNP), became the bank's new chairman.

National Bank has the highest bad loans among private commercial lenders. As of September 2024, its defaulted loans stood at Tk 23,722 crore, which is 55.81 percent of its total disbursed loans.

The Daily Star approached Touhidul Alam Khan, managing director of National Bank, over phone, but he was not available for comments.

Islami Bank Bangladesh is one of the worst victims of controversial business conglomerate S Alam Group, which dominated the board of the largest Shariah-based lender until mid-August of 2024.

The Chattogram-based conglomerate and its associated companies took out more than 50 percent of the lender's total Tk 163,863.78 crore loans, documents showed.

The central bank formed a new board of directors at the bank after the August 5 political changeover. Islami Bank officials said the lender is now trying to recover from its liquidity crisis.

Despite repeated phone calls, Mohammed Monirul Moula, managing director of Islami Bank, could not be reached for comment.

AB Bank has been facing a tight liquidity situation as it faced a huge deposit withdrawal pressure.

Till September 2024, the bank's deposits totalled around Tk 32,633 crore, down from Tk 35,438 crore at the end of December in the previous year, according to AB Bank's financial statement.

Contacted, Syed Mizanur Rahman, acting managing director of AB Bank, told the newspaper that the bank took the emergency fund for three days which would be repaid today.

This is not the first time the central bank provided emergency funds to dress up the balance sheets of some weak lenders at the year's end.

Last year, BB provided a total of Tk 22,000 crore in emergency funds to seven beleaguered banks, including five Shariah-based lenders.

The lenders were Islami Bank Bangladesh, Social Islami Bank, First Security Islami Bank, Global Islami Bank, Union Bank, Padma Bank and National Bank.

Economists and industry experts criticised such practices by the banking regulator, saying that such fresh fund injections to weak banks are not good for the economy when high inflation has been persisting for around two years.

Mustafa K Mujeri, executive director at the Institute for Inclusive Finance and Development, said there was no merit of such window dressing of the weak banks.

"These things have happened before, but now such practices are not acceptable," he told The Daily Star.

The lenders need to correct themselves by revealing their actual conditions, said Mujeri, a former chief economist of the central bank, adding that the recent political changeover would be meaningless otherwise.