The Bangladesh Bank in a recent audit has uncovered some major irregularities in loan disbursement of Union Bank.

It found that the lion’s share of the private commercial bank’s total disbursal had been lent out to some 300 companies that only exist on paper. Even the companies, in some cases, do not have trade licenses.

In the unavoidable aftermath, the Shariah-based bank is now chasing the borrowers and failing to realise the loans.

The scenario is quite similar to other notorious financial scams, including that of Basic Bank, Hallmark, Farmers Bank, and PK Halder.

According to the BB report, the Union Bank has not declared the loans as classified, though it apparently failed to take the money back.

The central bank said a total of Tk 183.46 billion --around 95 per cent of the bank’s total disbursal – is worth being classified.

The bank, against such a backdrop, has been asked to adjust the loans within next December and submit a progress report to the central bank after every three months, said Bangladesh Banks spokesperson and its executive director Serajul Islam.

The central bank issued a letter in this regard to the private bank on 27 April after phases of discussion, added the BB official.

As such a large amount of defaulted loans would put the entire financial sector in jeopardy, the central bank, in the letter, has stipulated a timeframe until next December to adjust and regularize the loans in phases.

However, the letter asked the bank to declare the loans as defaulted if it fails to regularise those within the stipulated period.

A regular audit of Bangladesh Bank found the irregularities in the beginning of the current year. Later, it sat in several meetings with the Union Bank and the instruction letter has been issued in the following development.

Earlier in September last, the central bank found a discrepancy of Tk 190 million in a vault of Union Bank's Gulshan branch in the capital. However, no regulating agencies, including Bangladesh Bank, have taken any disciplinary action against the bank over the incident for unknown reasons. The central bank later audited the bank and found more irregularities there.

The notorious scammer, PK Halder, resorted to a similar scheme and opened many paper-based companies to take out a large sum of money from various financial institutions. However, his companies were registered with the Registrar of Joint Stock Companies and Firms (RJSC).

But the Union Bank borrowers are a step ahead here as they only have trade licenses. Most of them do not exist in reality.

Union Bank MD ABM Mokammel Hoque Chowdhury did not respond when Prothom Alo repeatedly sought his explanation on the issue over phone.

Even he could not be reached during a visit to the bank’s headquarters on 23 June. This correspondent found the additional managing director, Habibur Rahman, at the head office. But he left his office tactfully in the face of a query over the issue and did not return within the next few hours. So, the bank’s statement could not be collected.

The discrepancies

The amount of total loan disbursed by Union Bank stood at Tk 193.82 billion at the end of 2021. Around 95 per cent of the loan, according to the central bank, is worth being classified. But the bank, at the end of the previous year, showed its defaulted loans to be only 3.49 per cent of the total disbursal.

The bank started its journey nine years ago and it has recently shifted to the Shariah-based banking system. Jatiya Party founding president Hussain Muhammad Ershad and its former secretary general Ziauddin Ahmed Bablu were involved with the bank during its inception.

The Bangladesh Bank officials found that the loans were taken from some 40 branches, including Panthapath, Gulshan. The bank even did not keep relevant documents against the loans. In some cases, the loans were not approved by the higher authorities.

In its letter to the Union Bank MD, the central bank asked to submit a loan recovery progress report every three months.

The bank has to regularize 25 per cent of the loan-- Tk 45.75 billion -- by 30 June, 35 percent -- Tk 64.19 billion -- by 30 September, and the remaining 40 per cent – Tk 83.37 billion by 31 December.

Explaining the issue, the central bank spokesperson said while visiting banks, it is often seen that there is no collateral for the disbursed loan, no existence of the receiving company, and no document of the loan.

In many other cases, the loan is used in a business other than the mentioned one. These loans are at high risk despite being regular and are classified on material and qualitative scales, he added.

How the bank operates

According to its annual report for 2021, the funding cost of Union Bank is 8.9 per cent while the lending rate is 9 per cent. So a big question emerged about how the bank is making profit after paying 8.9 per cent interest to depositors.

Despite spending a large portion of interest income as funding cost, the bank reported a net profit of Tk 870 million in 2021, when the figure was Tk 980 million in the previous year.

Meanwhile, the bank got listed with the capital market and raised Tk 4.28 billion fund through initial public offering (IPO) shares.

Officials of the bank said they currently have no loan disbursement target from the high ups. They are awarded with increment and promotion only when they bring a large sum of deposits. The branch managers who disbursed the controversial loans were promoted frequently.

The bank reported a deposit of Tk 200.22 billion in 2021 – Tk 41 billion from different government and autonomous institutions and Tk 33.85 billion from other banks. Only the Islami Bank Bangladesh Limited (IBBL) has a deposit of Tk 22.9 billion.

The Union Bank failed to return the deposit as per demand and is frequently extending the deadline.

The total disbursed loan stood at Tk 193.82 billion in 2021. Around 94 per cent of the amount – Tk 86.92 billion -- was disbursed from Dhaka and Chattogram. However, the bank geared up its service across the country and increased the number of branches to 104 in the previous year.

Its chairman Ahsanul Alam wrote in the annual report for 2021, "The economy of Bangladesh is facing some problems. The current inflationary pressure is a major problem especially for the low-income consumers. Also, high non-performing loans have long been a major concern in the banking sector.”

Ekushey Padak winning economist professor Moinul Islam said such a catastrophe is not impossible when one person controls seven banks. In fact, the government has no intention to restore order in this sector. The Bangladesh Bank has also become an institution of the finance ministry.

He also warned that there might be a big danger in the sector anytime soon.