Mindless restructuring of classified loans and the 2010 stock debacle have pushed the National Bank Limited to a precarious situation, with interest incomes stuck and the central bank apparently caring little about the bank’s miseries.
Sources said, if NBL was not allowed to regularise the huge classifiable loans, it would not have been able to show the Tk211 crore profit for the year ending December 2013 and hence not have paid any dividend to its shareholders.
In December last year, the central bank relaxed loan rescheduling conditions, allowing banks to reschedule the classified loans given to the business entities affected by political turmoil.
However, National Bank Limited (NBL), taking advantage of that, indiscriminately regularised huge classified loans by rescheduling, without actually being sure whether the borrowers would be paying the interests or not.
The bank also renewed some big classifiable loans of major business groups through “shadowy” deals, many of which were orchestrated by politically influential people, sources said.
Allegedly, rather than monitoring the bank’s activities, the Bangladesh Bank actually allowed and at times turned a blind eye towards many of these shadowy deals.
Although on papers the bank is a profitable organisation, but in reality, it has “hidden” hundreds of crores of taka worth losses, just to save its face in the market.
A staggering 40% of the large loans of the bank is stuck with three major business groups of the country namely S Alam, Maisha and Beximco.
Of them, S Alam has a loan of Tk1,193 crore with the NBL, which is more than the amount that a single entity is allowed to borrow from a commercial bank.
Meanwhile, Maisha and Beximco groups, whose owners are said to be close with the ruling party, have Tk1,125.55 crore and Tk468 crore loans with the NBL respectively. The Maisha loan also exceeds the NBL’s single borrower exposure limit.
S Alam and Maisha groups have not been paying the loan interests for around two years on various “unacceptable” grounds, hugely affecting the profitability of the commercial bank, once known as one of the better ones in the country.
NBL Managing Director AKM Shafiqur Rahman told the Dhaka Tribune: “It is true that the financial health of the bank has deteriorated mainly because of the growing non-performing loan figure and the huge losses that we suffered in the share market crash.”
He also admitted that some large loans given to major business groups had become burdensome for the bank because interest incomes had got stuck.
S Alam Group
The S Alam Group, one of the leading business groups in the country, has a staggering amount of around Tk4,500 crore loan in the banking sector.
According to rules, since the group has not been paying any interest to the NBL for a long time, its loan should have been marked classified.
The S Alam has always been citing “slow business” as the reason for its failure to pay the installments.
The NBL extended the loan limit for S Alam by adding the unpaid interests with the principle amount. That is actually how this particular large loan exceeded the single borrower exposure limit.
Interestingly, the central bank gave a no objection certificate to this deal on condition that S Alam group would repay parts of the loan in steps and reduce the principle amount to bring it under the exposure limit.
However, the NBL has never quite managed to get the payments out of S Alam group; neither did the central bank ever monitored the state of affairs.
NBL MD Shafiqur told the Dhaka Tribune: “S Alam group could not pay the installments because [they said] their business had been affected by political unrest. Although Bangladesh Bank has asked us to bring down the loan amount gradually, we cannot do it right now. But we hope that they will pay us in future because their [S Alam’s] business is running.”
Maisha Group
The Maisha Group, owned by ruling party MP Aslamul Haque, owes Tk1,125.55 crore to the NBL for building a theme park in Gazipur.
However, after getting the loan, the group said it had “suddenly” discovered that the theme park project would not be profitable.
After having failed to utilise the fund, the Maisha Group should have returned the money to the bank. But it did not do so; instead, it discontinued installment payment.
Instead, the group had recently been trying to get a limit extension on the loan saying that it now wanted to set up a power plant with the money, sources said. In this case too, the central bank has allowed the violation of the single borrower exposure limit for no apparent reason.
“Maisha group took the loan for setting up a theme park; but it did not do it because the project was not profitable. We suggested it to set up a power plant by utilising the loan so that we can get some return,” said NBL MD Shafiqur.
Beximco Group
GMG Airlines, a concern of Beximco Group, owed Tk138 crore to the NBL. The loan got classified after the company was shut down in 2012.
However, in December 2013, after the central bank relaxed conditions, GMG Airlines got its loan rescheduled without actually showing any specific source of income.
The banking regulator approved GMG’s cause without analysing its performance. As a result, the company had not been able to pay the installments.
NBL MD said: “We are trying to put pressure on GMG Airlines for making it pay the installments.”
Miscelleneous
The bank, through its subsidiary NBL Securities, lent out a total of Tk466 crore to investors before the stock market crash. However, after the debacle, the entire of that amount got stuck and the bank had showed the amount as blocked.
Soon after the crash, the CEO of NBL Securities lost his job because he failed to predict the market.
In December last year, the bank reduced its non-performing loan burden by taking advantage of the central bank’s relaxed loan rescheduling policy.
It regularised a total of Tk1,193.66 crore of classified loans with 14 borrowers, including the big three, against down payments of only Tk23 crore. This means that the bank has got only 1.9% return for regularising the huge amount of classified loans.
If the bank showed the amount as classified, it would have needed to keep a loss provision of Tk700 crore in its balance sheet.
In that case it would have to show a massive loss instead of the Tk211 crore profit that it showed for the year ended December 2013.
Having done that, the total classified loan figure of the bank stood at 2.99% of its total outstanding loan, down from a staggering 16.61% in September last year.
In December, the average ratio of classified loans in the banking sector was 12.79%.
In 2010, NBL declared 95% stock dividend, which was the highest in the banking sector that year. But, in 2012, it managed to declare only a meagre 6% cash dividend and was demoted to the “B” category in the share market.
However, in 2013, by declaring a 10% stock dividend by taking advantage of the provision facilities given by the central bank, the bank regained its category “A” status.
Bangladesh Bank Executive Director Md Naushad Ali Chowdhury told the Dhaka Tribune: “We have allowed the two groups to hold loans exceeding the single borrower exposure limit upon recommendation from the NBL board of directors.”
He also said the central bank was concerned about the miserable financial condition of the commercial bank and had been monitoring the clients, who had been holding loans in excess of the limit.