Bangladesh Bank was forced to resume services at three major branches of state-owned Janata Bank on Wednesday due to pressure from an influential quarter a day after closing down the bank's foreign loan operations on the charges of irregularities and corruption on Tuesday.
The regulatory body could not stand fast in its decision on the state-owned bank for even 24 hours.
The three branches are Janata Bhaban Corporate Branch, Local Office branch in Dhaka and Sadharan Bima Bhaban Corporate branch in Chattogram.
The branches have the most powerful clients. Almost half of the bank’s loans of Tk 770 billion were disbursed from these three branches. As a result, the central bank could not hold on to its decision long or to stop the bank's loan operations.
Even in 2015, Janata Bank was in a good position among the state-owned banks, with top exporters and corporate agencies as its the clients. They are replaced by top loan defaulters and influential persons now. The default loan rate has increased to some 19 per cent. The bank used to provide loans to other banks. Now the bank operates by taking loans of Tk 50-60 billion from the Bangladesh Bank and other banks on a daily basis.
Asked about this, economist Mainul Islam, former president of Bangladesh Economic Association, told Prothom Alo, “Bangladesh Bank’s authority to take a decision has been taken away long ago. I was not surprised at all that the decision was overturned within 24 hours. This is now the reality of the country. There is no such thing as autonomy of Bangladesh Bank. A very sick trend has grasped the banking sector.”
Why the decision to stop loans
One of the major reasons behind Bangladesh Bank’s decision to stop foreign loans in the three branches of Janata Bank was that some 84 per cent of the new loans of Tk 102.8 billion from January to May had been created from the non-funded liability.
In other words, the clients have not paid their liabilities in foreign currency for the loans that the bank had provided from the export development fund (EDF) or by opening back to back letters of credit.
As a result, the bank was forced to create loans in the name of those clients. The amount of such loans of the bank is Tk 100.3 billion. And the amount of forced and funded loans of the bank is Tk 197.08 billion.
In the letter in this regard, the central bank said these loans were not created following the normal banking processes. As the export price has not been returned, it has created a negative impact on the foreign reserves. Besides, there are risks of money laundering in the process.
The letter further stated that the facilities of the Export Development Fund (EDF) have been repeatedly provided to the same client without assurance that the export income will be returned against the loans from the EDF. This has led to the misuse of EDF-facilities.
The EDF has been formed with funds from the foreign reserves. The central bank makes it harder to take loan from the EDF amid dollar crisis, and also cancelled the EDF facility for those who are not making payment after taking loan in dollar.
The letter states funded liability of the bank's 17 top clients is Tk 294.25 billion (29,425 crore) with Tk 200.34 billion (20,034 core) came from letter of credit and non-funded liability. Discrepancy and fraudulence was found in the loan sanctioned for Crescent Group and AnonTex Group.
In this circumstance, Tuesday’s letter said foreign trade financing and opening of LC against three branches was suspended in three branches for now.
Why did central bank retreat?
Several bank chairmen, AnonTex Group and several influential persons are the clients of the Local Office branch, one of these three branches and 25 per cent of loan of Local Office branch is defaulted. A person from government top level and Crescent Group are clients of Bhaban Corporate branch and 30 per cent of its loan is defaulted in this bank. A company of the owner of the several banks is the client of Sadharan Bima Bhaban branch in Chattogram.
When this correspondent visited Janata Bank on Wednesday afternoon, officials said the central bank will not hold onto this decision for even two days, and their prediction became true by the evening.
The central bank in a letter to the bank’s managing director (MD) on Wednesday evening said instruction on halting foreign loan operation has been suspended on condition of maintaining adequate liquidity. Information on foreign loan of these three branches will have to be submitted to the central bank every month and data on the state of the bank’s liquidity and fund on every week.
Speaking to Prothom Alo, central bank executive director and spokesperson Sirajul Islam the decision has been suspended with several condition and those three branches have been directed to run their operation.
He, however, could not explain why the central backtracked from its decision.
Financial state of Janata Bank
As of Tuesday, deposits of Janata Bank fell to Tk 978.13 billion (97,813 crore) from over Tk 1.01 trillion (101,357 crore) at the end of 2021. Though the bank saw a drop in deposits, it increased loan disbursement. As of Tuesday, the amount of its loan increased to Tk 773.05 billion (77,305 crore) from Tk 698.49 billion (69,849 crore) at the end of 2021.
The bank invested Tk 352.54 billion (35,254 crore) on including bill, bond, shukuk and share market, which fell to Tk 292.92 billion (29,292 crore). However, the bank increased term investment, which rose to Tk 26.88 billion (2,688 crore) from Tk 22.18 billion (2,218 crore) at the end of 2021.
On 31 December last year, the bank borrowed Tk 19.43 billion (1,984 crore). On Tuesday, it also borrowed 5,989 crore from Bangladesh Bank and other banks and they have taking same amount of loan every day since May this year.
When this correspondent visited the bank’s office for a comment on Tuesday afternoon, he learned MD Abdus Salam Azad went to the central bank to have the decision withdrawn. The MD could also not be reached over mobile phone for comment.
Officials of the bank, however, said deposit saw a downtrend because of low interest but there is no liquidity crisis. The bank is also purchasing dollars from Bangladesh Bank four days a week to import fuel oil and insecticide for government organisations and since it is requiring huge cash, the bank is borrowing. Besides, the bank has investments and it is receiving a good profit, that’s why demand is being met by borrowings and more deposits will come in future. The loan volume will drop then, they added.
*This report appeared in the print and online edition of Prothom Alo and has been rewritten in English by Ashish Basu and Hasanul Banna