Graft leaves 2 pvt banks in dire straits

Only four years after their inception, two private commercial banks are at a risk of becoming insolvent due to rampant corruption, posing a potential threat of a spill-over impact on the entire banking system, according to a Bangladesh Bank report.

The issue has come to the notice of the Parliamentary Standing Committee on the finance ministry, which has voiced deep concern over the deteriorating condition of the Farmers Bank Limited and the NRB Commercial Bank.

The BB yesterday provided the committee with the report on the two banks that launched operation in late 2013 along with seven other banks.

Emerging from a meeting of the parliamentary body yesterday, committee Chairman Abdur Razzak told reporters that the degree of financial corruption unearthed by the central bank sent shivers down his spine.

All the committee members expressed dissatisfaction over the unchecked financial scams at the two newly-established banks, he said.

The committee has asked the BB to inform it by December about the punitive measures to be taken against the scamsters, Razzak said.

The members of the two boards would have to take responsibility for corruption at the banks, he said.

Awami League lawmaker Muhiuddin Khan Alamgir, also former home minister, is the chairman of the Farmers Bank board. He is also chairman of the Parliamentary Standing Committee on public accounts.

The committee had asked Alamgir to be present at yesterday's meeting. But he couldn't since he is abroad, Razzak said.

The Daily Star couldn't reach the AL lawmaker over his mobile phone yesterday.

NRB Commercial Bank Chairman Farasath Ali, a businessman, was also absent from the meeting.

As the financial health of the two private banks continued to deteriorate, the BB appointed its senior officials as observers to the boards of directors of the banks in January and December last year.

At that time, the BB said the observers would help the banks restore credit discipline and internal control and compliance, and also strengthen corporate governance and credit risk management. 

Between September and November in 2015, the BB conducted special inspections at Farmers Bank's three branches in the city's Gulshan, Motijheel and Shyampur, and found gross violation of banking rules in disbursing loans of around Tk 400 crore.

The inspection teams unearthed that the bank's Gulshan branch disbursed Tk 60 crore to Laila Bonospoti and Global Trading Corporation without taking the required mortgage.

In another instance, the bank's Motijheel branch sanctioned Tk 32.50 crore to Apollo Group in breach of the credit discipline, as its sister concern Apollo Multipurpose Agro Industries Ltd was a defaulter client of Janata Bank.

According to the central bank report, 13 counts of irregularities were found at the Farmers Bank, which include disbursement of loans to non-existent companies. The bank also gave loans to its own directors as well as those of other banks, violating the credit discipline.

Besides, the bank disbursed loans to defaulter clients against forged Credit Information Bureau reports, and took the burden of a number of bad loans from other banks, flouting the banking rules.

The Farmers Bank doesn't have the capacity to pay back the depositors' money and refund the credit taken from other banks, the BB report mentioned.

The bank has been facing an acute liquidity crunch over the last one year. It is now struggling to survive through mobilisation of funds from general people and other banks, offering interest rates higher than the market rate, the report noted.

The fourth generation bank continues to fail to maintain cash reserve ratio (CRR) with the central bank.

The BB has already slapped a penalty of Tk 18.49 crore on the bank because of its failure to keep the CRR between October last year and September this year.

For a few days between January and June, the bank also couldn't maintain statutory liquidity ratio (SLR) with the BB due to its liquidity crisis. It, however, has maintained an aggressive lending.

A bank has to keep 19 percent of its depositors' money in the form of SLR and CRR with the BB to protect the depositors' interest.

As the Farmers Bank continued to suffer liquidity crisis, the BB in January this year imposed some restrictions on the bank regarding disbursement of fresh loans and opening of new branches.

The central bank, however, relaxed the restrictions slightly following the bank's plea, but that move has gone in vain.

The BB also found that the directors of the NRB Commercial Bank were involved in massive irregularities -- from forging signatures of directors to sanctioning loans of more than Tk 700 crore in breach of rules.

The bank disbursed loans to former chairman of Mercantile Bank Shahidul Ahsan, violating the credit discipline.

Razzak said there was also a case of money laundering involving the bank's investors.

The money was first laundered to Dubai from Bangladesh, and later it was brought back in the form of paid-up capital for setting up the NRB Commercial Bank.

He, however, didn't mention the amount of the money or when it was laundered.

The BB has been asked to take strict measures after conducting a probe, he added.

BB inspections carried out between June and December last year found that the bank showed in its documents that four of its directors -- all non-resident Bangladeshis -- were present at its board meetings in 2013-2016 though they were actually abroad at that time, said the BB report.

Besides, financial scams pushed up the bank's defaulted loans to Tk 191.69 crore till June this year from 172.39 crore in December last year while its net profit fell to Tk 12.19 crore from Tk 86.14 crore.

On March 20, the central bank issued a letter to Chief Executive Officer of NRB Commercial Bank Dewan Mujibur Rahman, asking him to explain why he wouldn't be removed from the bank for “failing to ensure proper management and depositors' interest”.

A BB standing committee grilled Mujibur at the central bank headquarters between October 16 and October 24.

Yesterday, the parliamentary body on the finance ministry also discussed Islami Bank's credit growth, as the bank recently stepped up its loan disbursement significantly. It asked the BB to inform at its next meeting about the sectors where the bank has disbursed loans.