The banks were given the opportunity to use the security reserves to disburse shares of profits to their directors and shareholders
As Bangladesh Bank provided 11 loss making banks a facility for 10 years to keep more security reserves than required, 9 of them have finally reported a profit in 2020.
Among the banks that have got special facilities for saving reserves, five are state-owned banks. They are Sonali Bank, Rupali Bank, Agrani Bank, Janata Bank and Basic Bank.
The six private banks are IFIC Bank, AB Bank, First Security Islami Bank, Social Islami Bank, National Bank and Padma Bank.
The banks were given the opportunity to use the security reserves to disburse shares of profits to their directors and shareholders.
But had this provision not been offered by the central bank, then these nine banks would not have been able to stay out of the red, according to a Bangladesh Bank official seeking anonymity.
In his words, most banks will run into losses if the central bank enforced the provision regulations strictly. But amid the pandemic, it would have sent a bad message to the country's economy and the stock market.
For this, the real financial picture has been deliberately hidden.
Former Bangladesh Bank governor Dr Salehuddin Ahmed told Dhaka Tribune: “These banks are performing badly for a long time now. I think Bangladesh Bank could give them the savings provision facility for a short time.”
“Ten years is a really long time, I think it would have worked much better if the central bank gave them two to three years, did some assessment and extended the time if necessary,” he added.
Salehuddin Ahmed further said that banks getting as long as ten years may create a negative impression among the banks and can hamper their overall development.
Even after the facility, two of the banks, Basic Bank and Padma Bank, still incurred losses.
Regarding these two loss making banks, Dr Salehuddin said: “The central bank has given more than enough facilities to Padma Bank and Basic Bank. I do not think that these banks will be able to recover, even with these facilities.”
The central bank needs to make long-term plans and execute them properly in order to save these two banks, he said, adding that these banks need to be put under constant observation.
It is learned that the financial condition of the private sector AB Bank has been weak for several years now.
Bangladesh Bank's Bank Inspection Division-1 has reviewed the documents and found a provision deficit of Tk4,963 crore in the bank.
For that reason, Bangladesh Bank gave this bank 10 years to save Tk5,047 crore.
Former Foreign Minister and BNP leader M Morshed Khan is the founder of AB Bank.
In other words, it is necessary to keep provision of only Tk504 crore every year till 2029. As a result, the bank made a net profit of Tk39 crore in 2020. In the year 2019, the bank only made a profit of Tk16 crore.
IFIC Bank's provision deficit is Tk378 crore. The bank has the opportunity to save 20% in the current year, 30% in 2022 and 50% in 2023.
The bank made a profit of Tk56 crore in 2020 and Tk244 crore in 2019.
The government owns 32% of the bank. However, the control of the bank is in the hands of private entrepreneurs.
Last year, First Security Islami Bank had a shortfall of Tk200 crore in security reserves.
The bank has the opportunity to keep additional reserves of Tk100 crore this year and Tk100 crore next year. The bank is owned by S Alam Group. Its chairman is Saiful Alam (S Alam) himself.
Social Islami Bank, owned by the same group, had a deficit of Tk73 crore, which the bank will save this year.
The National Bank's reserve deficit in the crisis is Tk2,483 crore. The bank has the opportunity to maintain it at the same rate till 2024.
The deficit of Padma Bank (formerly known as Farmers Bank) is Tk1,641 crore. It got the opportunity to save the provision till 2025.
On the other hand, among the state-owned banks, Sonali Bank has a provision deficit of Tk3,250 crore and Agrani Bank has a provision deficit of Tk2,790 crore. The two banks have been given time till 2023 to save this deficit.
Moreover, the single deficit of Janata Bank is Tk11,716 crore, which Bangladesh Bank has given time till 2022 to save. Besides, Rupali Bank has a deficit of Tk1,010 crore and Basic Bank has a deficit of Tk3,415 crore, for which the central bank has given these two banks till 2024 to save provision.
Banks need to save provisions against both defaulted and good loans. Provision has to be made by deducting money from the net profit of the bank.