First News
Volume:7, Number:46
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Business & Finance 1

Nil Observer Effect

Even after Bangladesh Bank appointed observers in 13 public and private banks, there is hardly any sign of improvement in irregularities and financial conditions

| Afsana Khan |

Severe political pressure and owner interference are crippling the country’s public and private banks. Even after providing guidelines and directives, and appointing observers, Bangladesh Bank (BB) is neither able to stop the irregularities at banks, nor improve their financial condition.

BB has appointed observers in the governing boards of 13 public and private banks, but no effective change has been observed so far. Most of these banks have no development in their economic indicators, neither could good governance be ensured at any of them. Although the observers are well-aware of the irregularities, they are not being able to take action against the culprits due to intense political pressure. Sources said most governing board members of private banks are politically influential. While the observers are mentioning irregularities in their reports and providing directives, the banks are not paying any heed to them. Among the private banks, BB has appointed observers in NRB Commercial Bank, Farmers Bank, National, Islami Bank Bangladesh, ICB Islami Bank and Bangladesh Commerce Bank, while all the public banks, except Rajshahi Krishi Unnayan Bank (RAKAB), have got observers.

Former BB governor Dr. Salehuddin Ahmed said, “If BB does not take proper action based on the findings of the observers’ reports, the overall situation will never improve.” BB spokesperson Suvankar Shaha said, “The observers have been appointed to monitor the banks with a history of risky activities and lack of compliance. It is not like no improvement has been seen after the appointment of the observers. We cannot only compare the time of the appointment and current situation; we also have to think about what could have happened if we did not appoint the observers at all.”

To resolve internal conflicts, monitor irregularities in loan distribution, and overall decline in performance, BB appointed an observer in NRB commercial bank on December 29. When no viable change was seen in the bank's internal problems, BB sent a strong warning through a notice to the bank’s chairman and managing director. Instead of answering the notice, the bank officials took the matter to court. The bank’s chairman Farasat Ali is the former president of the USA branch of Awami League. NRB’s defaulted loans increased from BDT60 million to BDT190 million within a year. The bank’s capital reserve against risk-weighted assets dropped to 13.31 percent from 18.63 percent. On January 13, BB appointed an observer in Farmer’s Bank in order to prevent irregularities and develop the overall financial situation. Although BB has given a long list of directives Nil Observer Effect Even after Bangladesh Bank appointed observers in 13 public and private banks, there is hardly any sign of improvement in irregularities and financial conditions to the bank, it has allegedly ignored most of them. The irregularities were so uncontrollable that BB imposed a ban on the bank’s loan distribution last January, but later gave it permission to distribute small-scale loans under conditions. By the end of last December, the bank’s defaulted loans increased to BDT1.71 billion from BDT90 million in the previous year. The capital reserve rate has decreased from 11.80 percent to 10.64 percent.

National Bank has an observer since 2014. While the bank’s financial condition has improved quite a lot, it still lacks good governance. Despite having an observer, four managing directors had to quit their jobs before completing their tenure. The bank in-charge (chairman?) Jaynul Haque Shikdar is very influential, sources said. In 2004, Oriental Bank’s ownership had to be changed due to the loan frauds committed under the previous owners. The bank, renamed as ICB Islami Bank, is currently under the ownership of a Malaysia-based industrial group. Although an observer was appointed right after the change of ownership, the bank’s financial condition remains unchanged. It is facing big losses every year. In 2016, the bank sustained a net loss worth BDT270 million. Against BDT8.99 billion in deposits, the bank has issued loans worth BDT9.33 billion. Of the loans, over 72 percent, which is about BDT6.72 billion, is in default. Due to change in ownership, this bank owes its customers money. As a result, its overall capital deficit has reached an astounding BDT14.51 billion.

After being accused of financing terrorism, BB has appointed an observer in Islami Bank. Last December, huge changes occurred in the bank's governing body, management structure, and overall leadership. The bank is currently under the ownership of a Chittagong-based industrial group. The same industrial group also owns majority shares of Bangladesh Commerce Bank. This bank too has had an observer for a long time, without any change in its financial situation. The bank has only BDT540 million worth of capital, and 36.20 percent of its overall loans are in default. Although the bank has shown a profit worth BDT25 million after suffering a BDT1.7 million loss in the previous year, the defaulted loan was 30.58 percent by the end of the last year. Since 2004, the central bank has been singing MoUs with the state-run banks every year. The main objective was to stop the unabashed irregularities and indiscipline. Many new conditions and targets have been added over the years. As no substantial successes were achieved, BB appointed observers in Sonali Bank, Janata Bank, Agrani Bank, and Rupali Bank in November 2015. Even after doing so, no positive change was seen in the banks’ economic indicators. All of these banks are riddled with capital deficit, default loans, and a host of other issues. At the end of 2016, Sonali, Janata, Agrani, and Rupali's loss-making branches stood at 446 compared to 186 at the end of 2015.

Sonali Bank has the highest number of branches countrywide. The number of its loss-making branches has increased from 124 in 2013 to 233 in 2015. The bank incurred a loss of BDT8.18 billion in 2016 in contrast to BDT586.5 million in profits, earned a year earlier. Default loans have increased from BDT81 billion to BDT102.29 billion. The capital deficit stands at BDT34.75 billion. Forty-eight branches of Janata bank are running at a loss. The bank’s profit slumped almost 48 percent to BDT2.5068 billion, and Agrani Bank's profit dropped by 9.7 percent to BDT653.1 million. Rupali Bank incurred a loss of BDT497.90 million in 2016 compared to the profit of BDT235 million it reported in the previous year. In June 2016, the former managing director of Agrani Bank, Syed Abdul Hamid, was removed from his position. However, no positive change came after that decision as well. Agrani Bank counted a huge loss of BDT6.8031 billion in two fiscal years (FYs) due to financial anomalies like Letters of Credit (LCs) opened without any security money. Its number of loss-making branches increased from 34 to 78 by the end of last December. Its profits dropped from BDT3.51 billion to BDT600 million within a year, while default loans increased from BDT16.54 billion to BDT58.78 billion. The bank’s capital reserve rate dropped from 10.68 percent to 10.17 percent as well.

Rupali Bank currently has default loans worth BDT27.94 billion compared to BDT15.49 billion last year. Loss making braches have increased from 10 to 86. The bank’s profit came down from BDT840 million last year to BDT500 million by the end of December, and capital deficit increased from BDT2.46 billion to BDT7.15 billion. In November 2013, BB appointed an observer in BASIC Bank to address irregularities and ensure enforcement of regulations. However, irregularities continued in the presence of the observer. The then-chairman Abdul Hai Bacchu was forced to resign due to overwhelming complaints, and the government body that he led was absolved. While the new governing body has not been accused of any irregularities yet, the bank’s financial situation remains practically unchanged. The bank has a capital deficit worth BDT26.84 billion, and default loans worth BDT72.99 billion. Yet, the bank is showing a net profit of BDT25 million.

Currently, Bangladesh Krishi bank has default loans worth over BDT46.79 billion. The capital deficit has increased from BDT68.18 billion to BDT70.83 billion. As a result, the bank’s net loss increased from BDT590 million in 2015 to BDT3.87 billion in 2016. Bangladesh Development Bank’s default loans have increased to BDT7.30 billion. Only the year before, the bank had a capital deficit worth BDT7.61 billion. While the bank made a net profit worth BDT780 million last year, it dropped to BDT440 million by December 2016.

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