The boards of directors of several state-run banks have continued to flout rules of lending credit despite severe criticism, in the wake of a number of loan scams that ravaged the banking sector in recent years.
Bangladesh Bank has found a series of anomalies committed by the boards of state-owned banks from January to June this year, but is yet to take any action other than warning the respective managements.
According to a central bank report, the boards of five state-run banks – Sonali, Rupali, Janata, Agrani and Bangladesh Krishi Bank (BKB) – did not maintain any formality in terms of ensuring single borrower exposures, renewal of loans, taking compromise amounts at the time of new loan facilities, loan rescheduling and loan classifying.
The boards appeared to have centralised their loans to a number of similar groups, individuals and companies, violating the single borrower exposure limits and putting the banks into vulnerable situations.
According to the report, the board of directors of the state-run banks provided loans and extended limits repeatedly to same groups violating their respective single borrower exposure limits.
They also rescheduled loans to the groups that had already committed fraud with the respective banks and did not have the capability of paying installment of the rescheduled loans.
Moreover, loans were given to some companies that existed only on papers and did not have the necessary clearance from the central banks Credit Information Bureau (CIB).
There are also instances of manipulation of banking mechanisms for protecting some loan accounts from being defaulters.
Admitting that there was still indiscipline in the credit system of the state-run banks because of the directors, Sonali Bank Managing Director Pradip Kumar Dutta claimed that anomalies had been reduced to some extent.
He stressed transparency and accountability among the directors to rid the banks of the irregularities.
Pradip turned down the idea of privatisation to make the banks corruption-free, saying: “It is true that some time will be needed to make the banks free from corruption, but privatisation is not a solution.”
He also said: “Despite risks, the common tendency among the banks is to centralise loans to certain major business groups because in that way they can easily achieve credit targets.”
Rupali Bank MD Farid Uddin said professionals had to be recruited to the boards of directors to check irregularities.
Referring to state-owned BASIC Bank, he said: “The bank’s managing director had to be removed for his alleged involvement in corruption; but the board of directors was actually responsible for the irregularities.”
According to Mustafa Kamal Mujeri, director general of Bangladesh Institute of Development Studies (BIDS), there is a regulatory ambiguity for the state-run banks, who operate under the dual control of the Finance Ministry and also the Bangladesh Bank.
“So, the central bank hardly takes action against irregularities committed by the directors,” he said.
Mustafa, also a director of the Bangladesh Bank, called for steps to bring the state-run banks solely under one authority to ensure accountability and transparency.
Between December and November 2012, loans worth around Tk4,424 crore were brought out of BASIC Bank my means of alleged forgeries by its directors.
Rupali Bank
Among the state owned banks, the biggest irregularities have been reported from the Rupali Bank. The central bank in its review report has even marked it as more risky than any other banks.
The board of directors of the bank approved loans to 11 institutions beyond the single borrower exposure limit which is 15% of the bank’s capital.
It allowed four subsidiaries of the S Alam group to hold Tk198 crore above exposure limit. The total exposure of the subsidiaries is Tk350 crore, which is 34.72% of the bank’s capital.
The board of directors allowed Orion Power Khulna and one of its subsidiaries to hold Tk1,453 crore beyond the single borrower exposure limit. The central bank said in its review report that the bank’s capital would be negative if the group cannot pay the loan back.
The other companies that were allowed to hold loans in excess of the limit are Blue-Planet Knitwear and two of its subsidiaries Green-Planet Resort and Badar Spining; Shoagpur Textile; Virgo Pharmaceuticals; Japan Security Printing & Papers; and Galco Steel Bangladesh.
Rupali Bank MD Farid Uddin said the central bank’s approval had been taken for all the loans that were allowed above exposure limit.
The Rupali Bank board of directors have approved rescheduling proposal of two subsidiaries of SA group and four subsidiaries of the Nurjahan group, ignoring the respective branch manager’s objection that the clients were not capable of paying the installments of the rescheduled loan.
In December last year, the bank allowed SA Oil Refinary and Samannaz Super Oil under the SA group to reschedule classified loans of Tk102 crore by taking advantage of the central bank’s relaxed policy.
The Rupali board also approved rescheduling of Tk396 crore to four subsidiaries of Nurjahan group although there had been similar allegations.
Both these cases were reported from the Agrabad Corporate Branch of the bank in Chittagong. The manager had duly informed the board that both these groups had committed fraud in getting shipments cleared from the Chittagong port without informing the bank.
Moreover, the central bank has also found serious unresolved audit issues with the bank’s outstanding loans.
Bamgladesh Bank has recently asked the Rupali Bank board to explain how it had approved the rescheduling proposals from the subsidiaries of these two groups.
Apart from these, the board of directors have also renewed loans against OPI Enterprise and Tahmid Trading instead of rescheduling, although the accounts were classifiable.
Sonali Bank
The board of directors of the Sonali Bank, the biggest state-owned bank in the country, has approved project loans of Tk100.14 crore to Indigo Spining mills, a subsidiary of Thermax group, without taking CIB clearance.
As of June 2014, total loan balance of the group stood at Tk690.14 crore which is well beyond the single borrower exposure limit of Tk585 crore.
Despite objection from the bank’s credit section, the board approved the loan by merely taking a no objection certificate from the Bangladesh Bank.
Expressing dissatisfaction, the central bank warned Sonali Bank to not indulge in such irregularity in future.
The bank’s board has also extended the repayment tenure of a Tk58.66 crore loan to Base Papers Limited several times, just to make sure that the loan does not get classified, the central bank’s review report says.
Agrani Bank
The board of Agrani Bank approved loan of Tk210 crore to Sister Denim Composite, a sister concern of Thermax group, within just 13 days of its registration as a private limited company. The loan was approved without taking CIB clearance and credit rating.
The board has also extended the limit of a Tk40 crore loan by Tk10 crore to Jobida Karim Jute Mills. Because the tenure of that loan had expired seven months before that, it should have been classified as a doubtful loan.
The Bangladesh Bank has warned the bank’s management about these two irregularities.
The board of directors of Agrani Bank has also approved a loan of Tk357 crore against Mahid Textile by taking an NOC from the central bank, violating the single borrower exposure limit, although there were internal objections.
Janata Bank
The board of directors of the bank renewed the loan limit by Tk205 to two subsidiaries of Thermax Group, taking its total exposure to Tk755.6 crore, which was Tk232.63 crore higher than the bank’s single borrower exposure limit.
The board renewed loan facilities against four companies – Pegasus Leather, Bashundhara Paper Mill, Shameem Composit and Shameem Spining Mills – although all these companies were listed as defaulters in CIB report.
Bangladesh Krishi Bank
Despite having negative capital, the bank allowed several concerns of the S Alam group to hold loan of Tk728.47 crore and Multazim Spining Mills Tk173 crore beyond the single borrower exposure limit. In its review report, the central bank said these irregularities should amount to penalties.
The bank gave the same facility to two subsidiaries of the SA group. The total loan status of the group stood at Tk184.82 crore, which was well beyond the single borrower exposure limit.
According to the Bangladesh Bank, these irregularities were also punishable offences.