Central bank rejects, then approves giant loan

Bangladesh Bank has cleared the state-owned Janata Bank to grant a loan of Tk330 crore, marked as high risk by its own investigation, after it had already refused to approve the loan once. A source alleges that after Sonali Bank rejected the loan, the borrower lobbied hard with high officials of the central bank to get it approved from Janata Bank. In December 2015, Janata Bank acquired a loan of Tk142 crore for Habib Hotel International from National Bank. The privately owned National Bank approved the Tk180 crore loan in 2013, but refused to extend the loan when the borrower tried to revise up the cost of the project. A Bangladesh Bank investigation in 2014 found that the bank had breached regulations in granting the Tk180 crore loan and a large portion of it was diversified later on to an account named Tilottoma Life Style, International Television Channel and Little Builders Limited. Investigators suggested that the bank should recover its money or classify the loan account. Following the investigation National Bank refused to release money beyond the Tk142 crore that had already been issued. In December last year, Habib Hotel went to Sonali Bank, asking it to acquire the National Bank loan account and extend it to Tk339 crore. Bangladesh Bank Governor Fazle Kabir was the chairman of Sonali Bank at that time while Atiur Rahman was holding the governor post. The bank's board opposed the loan on the grounds that it will be risky and a violation of the bank's single borrower exposure limit. The chairman recommended that the proposal be sent to the central bank for a no objection certificate (NOC). The Department of Off-site Supervision (DOS) at Bangladesh Bank declined to issue an NOC, assessing that the Habib Hotel project was vulnerable. Sources said the department noted that the owner's equity portion of the loan had not been fully utilised, the land was leased from Public Works Department and the loan was being sought from a state bank, all of which signaled “an ill motive.” DOS also predicted that the hotel would not be completed with this amount as its projected cost was over Tk750 crore. After this failure, the borrower went to Janata bank with the same proposal in the same month. This time however, the central bank issued an NOC for a loan of Tk330 crore. The sudden change of mind at the DOS was due to the borrower's connections with a top central bank official, said a senior executive of Bangladesh Bank. The executive, who asked to remain unnamed, suggested that the borrower had lobbied hard with a top official. “Otherwise how it is possible that central bank gave two different opinions in the same case?” the executive said. Alam Ahmed, the managing director of Habib Hotel International, is a relative of country's first prime minister Tajuddin Ahmad. The central bank's observer to Janata Bank Executive Director Ahmed Jamal, who was present at the board meeting where Janata Bank approved the loan proposal, said the loan was approved following an NOC from Bangladesh Bank. ''I was not aware about central bank's investigation of that loan account. I did not even know it was rejected from Sonali Bank',” he said. He admitted that financing the hotel business was risky at this moment in Bangladesh. Asked about the changed decision, DOS in-charge General Manager SM Rabiul Hassan said, “The loan was approved subject to complying with strict conditions. Even the Managing Director of Janata Bank will be liable for the failure of the project or if the the money is diversified.” Janata Bank is one of the worse performers among state-owned commercial banks, with classified loans of Tk2,829 crore as of December last year. The default loan rate of the bank improved to 8.96% in December last year from 12.86% in the same period of the previous year thanks to massive rescheduling of loans. The bank rescheduled loans of Tk1,063 crore as of September last year.