National Bank begins repaying depositors today

National Bank resumed normal banking operations on Thursday, allowing ordinary customers to withdraw their deposits according to their needs. The bank will begin returning deposits today to customers who applied for withdrawals over the past four days.

According to National Bank sources, the financially troubled bank has secured Tk 700 billion in funding to resume normal operations. The state-owned Sonali Bank provided the funds against a guarantee from Bangladesh Bank.

The central bank has imposed a set of conditions on how National Bank can use the money. One of the key conditions is that the funds cannot be used to repay deposits held by any former or current director of the bank. Nor can the money be used to extend loans.

Bangladesh Bank issued these instructions in a letter to National Bank’s managing director on Monday. The letter states that the liquidity support will carry an interest rate of 10 per cent and have a tenure of three months.

Asked about the matter, National Bank Managing Director Mohammad Abu Zafar told Prothom Alo that pressure on withdrawals had already eased following changes in the bank’s board and management.

Import business had also begun to pick up, he said, adding that the gap between deposits and withdrawals was now relatively small.

“From today, we will return money to customers according to their needs,” he said.

Meanwhile, the bank collected withdrawal applications from customers between 11 and 14 October to assess their needs. According to National Bank sources, nearly 11,000 customers submitted applications to withdraw a total of Tk 200 billion over the four days.

Branches across the country reported customers’ withdrawal requests to the head office, which then supplied them with the necessary funds. Initially, the bank has been instructed to repay applicants’ deposits held in current and savings accounts over the next few days. Other customers will receive their money in phases at a later stage.

National Bank must comply with 11 conditions imposed by Bangladesh Bank on the use of the funds borrowed against the central bank’s guarantee to repay depositors.

Under the conditions, the bank cannot pay cash dividends until the loan has been repaid. The funds cannot be used to provide loans or investments to any former or current director, or to institutions in which they have an interest.

They also cannot be used to repay deposits held in the names of former or current directors, whether directly or through undisclosed arrangements, extend new loans or investments, or increase existing loans. Even the undisbursed portions of previously approved loans cannot be released using this money.

Bangladesh Bank has further stipulated that the funds cannot be used to settle existing interbank liabilities or placements, acquire loans or investments from other banks, or purchase foreign currency to meet letters of credit obligations against forced loans or loans against trust receipts (LTRs). The money also cannot be deposited with another bank.

While the guarantee remains in force, newly collected deposits must be used solely to improve the bank’s liquidity position and meet obligations to ordinary depositors.

The bank’s operating expenses cannot increase by more than 5 per cent compared with the previous year, and the guaranteed funds cannot be used to cover operating costs. National Bank must also report to the central bank every week on how the guaranteed funds are being used.

Bank’s financial position

According to National Bank’s data, as of 12 October, its deposits stood at Tk 335.15 billion, while outstanding loans totalled Tk 432.30 billion. This put its advance-to-deposit ratio (ADR) at 132 per cent.

Under Bangladesh Bank’s rules, a bank can lend up to Tk 87 against every Tk 100 in deposits, meaning its ADR should not exceed 87 per cent. At the end of June, nearly 66 per cent of National Bank’s disbursed loans were classified as defaulted.

According to the latest figures, National Bank’s total borrowing from Bangladesh Bank and other banks, including funds obtained against guarantees from the central bank, stands at approximately Tk 260 billion.

The Sikder Group controlled National Bank from 2009 to 2023. During that period, various financial irregularities took place, leaving the bank with substantial losses and in severe financial distress.