Nov 22
Hemorrhage In Banking Sector Continues PDF Print E-mail

By Apu Ahmed

The country’s ailing banking sector has been mired again with the series of ‘disturbing’ developments in the last month. From detection of massive corruptions in extension of loans by two new generation private commercial banks to the ‘unholy take-over’ of yet another private bank by a Chittagong based group without any hindrance have once again exposed weakness of the monitoring agency id est (i.e) the country’s central bank, Bangladesh Bank. The issues also brought forward the ‘mysterious but continuous policy’ to overlook the scams and lapses in the banking sector responsible for maintaining much needed blood circulation to the overall economic system.

 

BB guards without guarding

It seemed that the government has been most oblivious about problems of the country’s financial sector, more preciously the banking sector that played the most important role to create entrepreneurs with the able support of the monetary policy by the central banks as seen in counties. But the role of central bank, as it has been seen since the inception of the present government in 2009, became ‘questionable’. It is evident that the BB ‘delays or forced to delay’ in making public the actual satiation of lapses perpetuated by the banks to hinder the money circulation to the targeted group. Due to such error in money circulation inequality in the country is widening which is evident in the latest Household Income and Expenditure Survey.

 

No respite from scams

The nation has already suffered scams in the financial sector that began with the over-exposure of the commercial banks to the share market causing artificial surge in price of shares and the biggest ever collapse in 2010-11. Both the BB and the Securities Exchanges Commission were clueless or kept clueless by a vested quarter allegedly supported by the present political regime about the collapse that rendered 14 lakh new entrants to the market penniless. The London based Economist described the scam as ‘Fresh innocents to the slaughter’. The Hallmark loan scam in the country’s largest state-owned bank Sonali stunned the whole nation in 2014. Before the Hallmark loan scam worth Tk 3,500 crore is barley over loan scams worth around Tk 6,000 crore in another state-owned bank BASIC led by politically motivate chairman Sheikh Abdul Hye Bacchu was unearthed. The unprecedented reserve theft in the Bangladesh Bank in 2016 with the suspected involvement of the bank insiders hogged the headlines of the newspapers in home and abroad.

 

New banks in scams

But there have been no significant developments to address the financial crimes, nor any convincing step seen from the part of the government to bring the perpetuators into book. Moreover, the government has awarded licences to nine new banks despite warning from the experts that establishment of the new private banks would crowd the already crowded banking sector and would create scopes of loan scams. The omen became true with much delay as a Bangladesh Bank report placed before the parliamentary committee on ministry finance on October 29 highlighting massive corruptions taken place in two out of nine banks, also called the fourth generation bank, within three years in operation. The BB report cautioned that the Farmers Bank Limited, owned by former minister Mohiuddin Khan Alamgir and hit by irregularities, posed serious 'risk' for the financial sector. Should we give credit to BB for bringing the irregularities into light or blame the BB for not punishing the errant bankers?

 

Farmers bank bleeds

Within one year in operation managing director Choudhury Moshtaq Ahmed of the Farmers Bank was fined only Tk 10,000 on charge of illegal payment of Tk 1.92 crore as office rent. In 2015, BB asked the Farmers Bank Ltd to remove its executive committee chairman Mahabubul Haque Chisty for his involvement in irregularities to disburse Tk 50 crore loans. BB, however, allowed him to continue as the director. BB appointed an observer to the bank last year after finding irregularities in disbursing loans in billions of taka but the move was halted by the High Court later. Now the bank is taking loans with high interest rates from depositors and other banks while it does not have the capacity to repay. The Farmers Bank has created 'systematic risk' for Bangladesh's entire financial sector in this way. Other major irregularities identified with the bank are not following guidelines to disburse loans, giving loans to shady organisations, giving loans to its directors and directors of other banks violating rules, giving loans against insufficient or faulty guarantees, giving a borrower more amount than the ceiling. Besides, twenty-eight of the 54 branches of The Farmers Bank are operating on losses. The bank's cash reserve at the central bank was Tk 300 million on Sept 17 and its loan-deposit ratio to 88.7 percent, more than three percent higher than the maximum acceptable ratio of 85 percent.

 

Irregularities galore in NRBCB

The NRBCB is not far behind the Farmers Banks as far as corruptions and irregularities concerned. The bank made minutes of meeting of its board by forging absent directors' signature.  It lent money to an organisation related to Mercantile Bank Chairman AKM Shaheed Reza in breach of the rules. The other irregularities against the bank include corruption in drawing capital during formation, selling shares to people staying in Bangladesh instead of non-residential Bangladeshis or NRBs, and disbursing loans violating rules. The bank's Managing Director Dewan Mujibur Rahman and other directors were involved in the irregularities. The classified loans of the bank totalled around Tk 193 million in 2016, but rose to over Tk 1.91 billion in 2017. The amount is around 5 percent of its total loans. Among the new banks, NRBCB is placed second in rates of classified loans. The Farmers Bank tops the list.  The NRBCB, run by chairman Farasath Ali and vice-president Toufique Rahman Chowdhury, both hailed from Sylhet, the home district finance minister AMA Muhith. BB has found valid grounds to remove MD Dewan Mujibur Rahman of the bank for unsatisfactory replies about irregularities, but it has to wait for green signal from the Financial Institution Division run by Muhith.

 

SIBL taken over

There were dramatic changes in the Social Islami Bank Limited on October 31 as top management of the bank was removed in a move that strengthened the grip of Chittagong-based S Alam Group on the bank. The Group recently purchased about 50 percent stake in the Shariah-based bank through 19 companies, violating the Banking Company Act, 1991. Md Rezaul Haque, chairman of the board; Md Anisul Hoque, chairman of the executive committee; and Shahid Hossain, managing director, were not present when the Anwarul Azim Arif, a former vice-chancellor of Chittagong University, was made the new chairman. Belal Ahmed, vice-chairman of NRB Global Bank, became the new executive committee chairman. Belal is a son-in-law of S Alam Group Chairman Saiful. He will represent Unitex Steel Mills, which is also a concern of S Alam Group, on the bank's board. Quazi Osman Ali, additional managing director of First Security Islami Bank, was appointed the managing director of the SIBL. Saiful is the chairman of First Security Islami Bank. He and his family members are on the board of directors of First Security Islami Bank, Al-Arafah Islami Bank, Union Bank, NRB Global Bank and Bangladesh Commerce Bank. S Alam Group Chairman Mohammed Saiful Alam was at the meeting.

 

From UCBL to IBBL

Earlier on January 5, Islami Bank Bangladesh Ltd saw several major shifts in policy and operations that some insiders claim were rife with irregularities and benefited interests that have been gaining control of the bank. The chairman, vice-chairman and managing director of IBBL all abruptly resigned. Following the change, a number of foreign investors sold off their shares in IBBL, which were allegedly bought by S Alam Group. As of September this year, S Alam Group owns 25% of the shares of IBBL. Furthermore, the current IBBL chairman, who was appointed at the time, is a representative of Armada Spinning Mills, also allegedly a sister concern of S Alam Group. In August 1999, the late stalwart of ruling AL Akhtaruzzaman Chowdhury Babu, was allegedly to have forcibly taken control of the United Commercial Bank Limited five years after he was ousted from its board on charges of defalcation and irregularities. According to eyewitnesses, some 40 armed men led by Mr Babu stormed the bank's headquarters in Dhaka and forced their way into the boardroom, where the directors were meeting. Police ignored directors' pleas for protection. ‘The incident dealt a serious blow to Bangladesh's efforts to integrate into the global economy at a time when we're gradually restoring our credibility in the financial world,’ said Wahiduddin Mahmud, professor of economics at Dhaka university. Mr Babu who was the principal accused in a sensational murder case when a business rival and fellow UCBL director, Humayun Zahir, was killed. To escape arrest, he fled to the United States, returning home after the Awami League came to power in 1996. Banking sector observers said S Alam Group’s owners had family relation with Mr Babu.

 

Urges from experts

Salehuddin Ahmed, a former governor of Bangladesh Bank, said it is not a good sign that loans and shares of the banking industry are being concentrated in a single business group. The regulatory bodies will have to deal with the issue strictly and inquire about the source of the funds the companies used for buying the shares, he commented. In fact such rampant crimes will not help in restoring discipline in the banking sector and ultimate emancipation of majority population.  So the experts who used to involve with the BB and ministry of finance and make contribution to the economic development have been urging the government to show political and establish good governance in the banking sector. But the urges are bouncing back from deaf ears of the present government.