Farmers Bank: It now has 3 months to sort itself out

Bangladesh Bank yesterday gave the cash-strapped Farmers Bank a breathing space of three months to address its current crisis.

It, however, asked the commercial bank to resolve all the urgent issues in a week.

The central bank came up with these decisions during a meeting with the members of the restructured board of the troubled bank at the BB headquarters in the capital.

“The central bank has asked us [the directors] to inject fresh funds into the bank,” Mohd Athar Uddin, a director of Farmers Bank, said while briefing journalists after the meeting.

The Farmers Bank, that began its operation just four years ago, has been facing liquidity crunch for the last few months due to huge irregularities over loan disbursements.

The bank has taken an initiative to mobilise funds by issuing a bond worth Tk 500 crore, which would help maintain its statutory liquidity ratio and cash reserve ratio with the central bank, Athar said.

Asked whether the restructured board would take legal actions against its former directors, who have resigned for their alleged involvement in financial scams, he said the board would not take any steps against them as it was not its job.

Farmers Bank Chairman Muhiuddin Khan Alamgir and Audit Committee Chairman Md Mahabubul Haque Chisty were forced to step down from the board on Monday in line with a BB directive.

In reply to a question, Athar said the bank's Managing Director AKM Shameem would continue his job and the board would not take any decision in this regard.

The BB would take a decision whether Shameem would continue in the job, he noted.

On Sunday, the BB issued a notice to Shameem, asking him to explain within a week why he would not be removed from his post for failing to manage the bank efficiently and address its liquidity crunch.

It also asked him to explain why the bank disbursed fresh loans despite having restrictions on lending, according to the BB notice.

The restructured board would try its best to speed up its drive to recover the defaulted loans, Athar said.

As of September this year, Farmers Bank's non-performing loans (NPLs) amounted to Tk 377.68 crore, up by around Tk 100 crore from a year ago. The bank's NPL accounted for 7.45 percent of the bank's total outstanding loans.

Subhankar Saha, spokesperson and executive director of BB, told reporters after the meeting that the central bank asked the directors of Farmers Bank to inject fresh equity from their own sources to tackle the ongoing liquidity crunch.

Earlier this month, the commercial bank failed twice to honour a cheque of Tk 35.44 crore presented by Bangladesh Telecommunications Company Ltd due to fund shortage. The state-owned telecom firm got the money later.

A central bank report has recently mentioned that Farmers Bank does not have any capacity to pay back the depositors' fund.

The board has been asked to avoid excess expenditure to tackle the ongoing crisis and recover the loans from the defaulters, Saha said.

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

Last year, the central bank appointed an observer to the bank to help it restore corporate governance, but the initiative went in vain.

Against this backdrop, the central bank took an initiative last week to restructure the troubled bank's board and asked two directors to resign.