Six banks still in shortfall despite BB support

Six banks including four Shariah-based ones are still facing a deficit in their current accounts with the central bank despite special liquidity support.

The banks are National Bank, First Security Islami Bank (FSIBL), Social Islami Bank, Union Bank, Global Islami Bank and Bangladesh Commerce Bank. Chattogram-based business giant S Alam Group has controlling stakes in all banks save for National Bank.

As of August 7, the six lender's current account deficit with the Bangladesh Bank stood at Tk 14,621 crore. If their cash reserve ratio deficit is considered, their total shortfall is Tk 20,774 crore, according to data from the central bank.

The shortfall in the lenders' current accounts with the BB means they are in deep crisis, said a senior official of the central bank on the condition of anonymity.

Generally, banks have to maintain a current account with the central bank for different clearing payment systems and they have to maintain a hefty balance in the account.

In theory, the central bank can restrict those banks from the clearing platforms due to their current account deficit, said the BB official.

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"The shortfall means the lenders are in deep crisis," said another senior official of the central bank seeking anonymity.

The shortfall came despite the BB providing special liquidity support to the banks for more than a year, the official added.

The BB's special liquidity support was equivalent to the deficits in the lenders' current account.

As of August 7, the outstanding liquidity support to six lenders stood at Tk 14,621 crore.

Of the six banks, the highest current account deficit is of FSIBL, whose chairman is S Alam Group's chairman Mohammad Saiful Alam. The Shariah-based bank's deficit is Tk 6,693 crore, according to BB documents.

Alam's wife Farzana Parveen and four other relatives are on the board of FSIBL.

Social Islami Bank, whose chairman is Alam's son-in-law Belal Ahmed, has the next highest current account deficit: Tk 2,877 crore.

National Bank -- where Ratna Dutta, wife of S Alam Group executive director Subrata Kumar Bhowmick, is a board member -- came in at third spot with a deficit of Tk 2,586 crore, followed by Union Bank (Tk 2,097 crore).

Alam's siblings Halima Begum, Osman Goni and Md Rashedul Alam along with his wife Marzina Sharmin and nephew Mohammad Mostan Billah Adil are on the board of Union Bank.

Bangladesh Commerce Bank, which has had weak financial indicators for years, faces a deficit of Tk 336 crore in its current account, while Global Islami Bank's deficit stood at Tk 32 crore.

"A lender should never have a deficit balance in its current account," said Mohammed Nurul Amin, former chairman of the Association of Bankers Bangladesh, a platform of banks' chief executives and managing directors.

The central bank should penalise the bank if it ends up with a current account deficit.

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"When that does not happen, and the central bank instead provides liquidity support, we can guess in which direction our banking sector is heading," said Amin, also the former managing director of Meghna Bank.

When a commercial bank's current account with the central bank turns negative, the BB can provide loans to the bank against "promissory note" for a short period of time, said three BB officials involved with the proceedings.

A promissory note, sometimes referred to as a note payable, is a legal instrument, in which one party promises in writing to pay a determinate sum of money to the other, either at a fixed or determinable future time or on demand of the payee, under specific terms and conditions.

However, the BB was providing special liquidity support to the banks without any securities on the instruction of former BB governor Abdur Rouf Talukder.

A few months ago, when asked why liquidity support was continually provided to the banks, Talukder told journalists that it was done at the governor's discretion.

"The support was provided in the interest of the country's banking sector," BB spokesman Md Mezbaul Haque told The Daily Star recently.