Board to be restructured

The central bank has advised the government to take action against the board of directors of state-run BASIC Bank, as the governing body was found guilty of committing large-scale irregularities in approving loans, and in recruitment and promotion.
Bangladesh Bank Governor Atiur Rahman yesterday sent a letter to Finance Minister AMA Muhith to initiate steps against the board after all efforts to discipline the once good-performing bank went in vain.
Talking to reporters at the secretariat, the minister said he was yet to see the letter but the BB governor had told him about it. In reply to a query, Muhith said the board of BASIC Bank would be restructured soon.
The letter did not directly advise the government to dissolve the board and referred to clauses 46 and 47 of the Banking Companies (amendment) Act 2013. A central bank official said the government should either disband the board or remove any controversial member from it.
The clauses empower Bangladesh Bank to dissolve the boards of private banks but it has not been given such power in case of state-run banks.
However, the central bank can send reports to the government about the behaviour of board members of state-run banks, and recommend taking action.
In such cases, the government will consider the recommendations with due importance, says the Act.
Sources said the BB letter cited large-scale irregularities by the board in approving loans, and recruitment and promotion of officials of the bank.
It also mentioned the irregularities at BASIC Bank and its worsening financial condition.
This is the second time in the last six years that Bangladesh Bank has recommended taking action against the board of a state-run bank.
The regulator made a similar recommendation for Sonali Bank for its role in the Hall-Mark scandal and the bank's board was restructured subsequently.  
The central bank's latest move comes five days after it removed BASIC Bank managing director Kazi Faqurul Islam, who led the bank when the irregularities took place.
The banking regulator even suspended loan activities of BASIC Bank's three branches -- Dilkusha, Shantinagar and Gulshan -- where most of the irregularities took place last year and in 2012.
In efforts to improve the situation, the BB had appointed an observer at the state bank, and signed a memorandum of understanding to put the lender on a firm footing again. But the steps saw no success.
BASIC Bank's reckless lending continued even after the signing of the agreement and appointment of the observer. One of the best-run banks till 2009, BASIC Bank has been mired in financial irregularities in recent years.
The central bank's Department of Off-Site Supervision identified 23 counts of irregularities at the three branches in question.
The board of directors approved and rescheduled loans even though the borrowers were not creditworthy, and the credit committee at the head office opposed the loan proposals.
"This has not been seen in any case of the decision-making process by any board for any of the 40 local scheduled banks who sent reports to the department," says the report of the Department that carried out investigation last year.
The board approved large amounts of loan without assessing the borrowers' creditworthiness.
For example, Western Enterprise was given Tk 20 crore in loans five days after the company opened an account. Similarly, Techno Design and Development got a loan of Tk 80 crore a day after opening accounts.
The bank approved loans without assessing the mandatory Know Your Customer (KYC) procedures in a clear violation of anti-money laundering laws.
BASIC Bank provided and rescheduled large loans to clients who were named and shamed as defaulters in the Credit Information Bureau report of Bangladesh Bank.
The board got engaged in recruitment and promotion in different posts though Bangladesh Bank regulations bar the directors from doing so.