Bangladesh Bank in 2012 gave its approval to Farmers Bank on political consideration. From the very outset this bank gained indulgence from political powers despite its irregularities and continued to survive by means of misusing political power. At the time of establishment, its chairman had been the former home minister Mohiuddin Khan Alamgir. But when the client confidence reached a nadir, the influential entrepreneurs finally had to step down from their positions in the bank. It was decided that the bank would be given a new lease of life.
In the effort to give it a new lease of life, the bank's name was changed to Padma Bank. A different influential businessman took over. State-owned banks and financial institutions were told to buy Padma Bank shares. But clients' confidence was never restored. Even that influential businessman eventually left Padma Bank.
Just within a few days of the bank starting operations, reports spread regarding irregularities in the bank's loans. Depositors began withdrawing their money and the bank came under pressure. It faced an acute cash crunch and was on the brink of closure.
Padma Bank remains a glaring example of the fact that no decision based on political considerations and power in the financial sector can be sustainable. Bangladesh Bank provided the bank with every facility possible. Even so, Padma Bank eventually failed to stand on its own. A total of 62 per cent of the bank's loans are in default. Many clients are not even getting their deposits back.
Now when it came to the decision of merging banks, Padma's name popped up first. Bangladesh Bank's recommendation was to merge Padma Bank with EXIM Bank, also of the private sector. As part of the merger process, the central bank has appointed the audit firm Rahman Rahman Huq to carry out an assessment of both the banks' assets and liabilities.
Former managing director of Sonali Bank, Pradip Kumar Dutta, served as advisor to Padma Bank for one year. Speaking to Prothom Alo about the present poor condition of the bank, he said, "Padma Bank faces the consequences of not following the rules and regulations. A bank can't last on the identity of its owner. A bank runs on the confidence of its clients. The bank provided unauthorised loans and these loans are not being recovered. As a result, the bank is struggling to return their clients' deposits."
Pradip Kumar Dutta went on to say, "State-owned banks have been given 65 per cent ownership of Padma Bank. It is a mystery why the bank is unable to survive even after such measures."
Efforts to keep in afloat
Farmers Bank began through irregularities. Before it even got approval to begin operations, it had a signboard up and began recruiting staff. Along with the bank's chairman Mohiuddin Khan Alamgir, the audit committee chairman was Mahbubul Huq Chisty. Just within a few days of the bank starting operations, reports spread regarding irregularities in the bank's loans. Depositors began withdrawing their money and the bank came under pressure. It faced an acute cash crunch and was on the brink of closure.
At this juncture, in November 2017 Mohiuddin Khan Alamgir and Mahbubul Huq Chisty were obliged to leave the bank. Bangladesh Bank also dismissed the bank's managing director AKM Shameem. Bangladesh Bank's inspection revealed that the loans taken by the borrowers had been deposited in the bank accounts of the chairman and the audit committee chairman. Mahbubul Huq Chisty alias Babul Chisty and his son Rashedul Huq Chisty are now in jail. In October last year they were sentenced to 12 years' rigorous imprisonment in a case of misappropriating Tk 1.6 billion (Tk 160 crore).
Next on the Farmers Bank scene came former banker and asset management company owner Chowdhury Nafeez Sarafat, taking over as chairman of the bank. Then in order to keep the bank afloat, at the behest of the government Sonali Bank, Rupali Bank, Agrani Bank, Janata Bank and Investment Corporation of Bangladesh (ICB) joined in the ownership of the bank. And so 65 per cent of the bank's shares went into the hands of these state-owned financial institutions. The name of Farmers Bank was changed to Padma Bank. Bangladesh Bank gave the bank all sorts of policy concessions on condition that it brings in foreign investment. But the foreign investment committed to Padma Bank also never showed up. Neither was the clients' confidence restored.
62 per cent of loans in default
According to Padma Bank's financial records, the bank's deposits at the end of December 2023 stood at Tk 61.86 billion (Tk 6,186 crore). Of this, the deposits of state-owned institutions and banks amount to Tk 28.5 billion (Tk 2,850 crore). At the end of December the bank's loans totalled Tk 54.4 billion (Tk 5,440 crore). Of this, default loans alone stood at Tk 35.5 billion (Tk 3,550 crore). That means, around 62 per cent of the distributed loans were in default.
The bank's revenue from the loans is not enough to cover the interest on deposits. As a result, every year Padma is counting huge losses. And as the bank is not being able to return the money of depositors, client confidence is at an all-time low. At this juncture an initiative was taken to convert the Tk 28.5 billion (Tk 2,850 crore) received from the government sector into shares, but this did not yield results.
Under these circumstances, the chairman of the bank's board of directors, Chowdhury Nafeez Sarafat, resigned at the end of January this year. Since then Sonali Bank's managing director Afzal Karim has been the acting chairman of Padma Bank. He is the bank's director, representing Sonali Bank.
At the end of 2023, the deposits of the state-owned Sonali Bank, Agrani Bank, Janata Bank, Rupali Bank and Investment Corporation of Bangladesh (ICB) in Padma Bank amounted to Tk 10 billion (Tk 1000 crore) and deposits of the Climate Change Trust Fund and Climate Change Trust totalled Tk 7.6 billion (Tk 760 crore). Of the remaining deposit of just over Tk 10 billion (Tk 1000 crore), some are of Jiban Bima Corporation, Sadharan Bima Corporation, Bangladesh Power Development Board, Titas Gas, Bangladesh Telecommunications Regulatory Commission (BTRC), Mongla Port Authority, Bangladesh Infrastructure Finance Fund Limited (BIFFL), Islamic Foundation, Narayanganj Dockyard and Engineering Works and a few other organisations. Not all these organisations are getting their deposits returned back to them, and some are not even getting any interest.
It is hard for a bank to survive once trust and reputation is lost, no matter how influential the people involved may be. The owners in collusion have destroyed many banks. These mismanaged banks have been rendered even weaker by unfair facilities provided by the regulatory institutions. As a result, the entire banking sector has reached a critical state.Mustafa K Mujeri, former chief economist of Bangladesh Bank
Top defaulters
The top loan defaulter of the bank is Chattogram's Muhib Steel and Ship Recycling Industries, owned by Mujibur Rahman alias Milon. He is reportedly in hiding abroad for long. The company's loans total Tk 1.47 billion (Tk 147 crore). On the list of top defaults of the bank is Khulna's Mimu Jute Mill, Mullick Aquaculture, and Monmi Agro. The default loans of these three companies total Tk 1.08 billion (Tk 108 crore). The default loans of Chattogram's Nahar Farmers Group's companies Nahar Farmers, Maya Feed and Nahar Farmers Rice Bran Oil amount to Tk 1.01 billion (Tk 101 crore).
Apollo Engineering and Construction and Apollo Trading's loans are Tk 910 million (Tk 91 crore), Atlas Green Pack Ltd Tk 910 million (Tk 91 crore), Alvi Agro Complex, Priyanka Trading and Roseburg Auto Rice Mills Tk 800 million (Tk 80 crore).
Outside of this Shital Enterprise's loan is Tk 780 million (Tk 78 crore), Rangpur Jute Mills Ltd Tk 700 million (Tk 70 crore), SB Auto Bricks and Sagir Brothers Tk 630 million (Tk 63 crore), Agro Erina Associates Tk 630 million (Tk 62 crore), Joy Enterprise and Silver Trading Tk 580 million (Tk 58 crore), Al Faruk Bags Ltd Tk 530 million (Tk 53 crore), Global Trading Corporation Tk 510 million (Tk 51 crore), Shaheed Ship Breaking Tk 48o million (Tk 48 crore), Rana Auto Bricks, Selim Auto Bricks, AR International and MH Enterprises Tk 480 million (Tk 48 crore).
When a visit was paid to Padma Bank head office on 30 April to discuss these matters, the recently resigned managing director Reaz Khan was unwilling to speak.
Finance sector analysts feel that people's trust is the main asset of any bank. Former chief economist of Bangladesh Bank, Mustafa K Mujeri, speaking to Prothom Alo, said, "It is hard for a bank to survive once trust and reputation is lost, no matter how influential the people involved may be. The owners in collusion have destroyed many banks. These mismanaged banks have been rendered even weaker by unfair facilities provided by the regulatory institutions. As a result, the entire banking sector has reached a critical state."
Mustafa K Mujeri went on to say, good governance must be restored to the banks and the guilty must be punished. If this is not done, others will be encouraged to do the same. One crisis after the other will take place. The country will not be able to advance.
* This report appeared in the print and online edition of Prothom Alo and has been rewritten for the English edition by Ayesha Kabir