Alamgir, Chisty barred from raising shares in Farmers Bank

Bangladesh Bank has shot down requests from former Farmers Bank Chairman Muhiuddin Khan Alamgir and Audit Committee Chairman Md Mahabubul Haque Chisty to increase their shares in the bank as it looks to steady the beleaguered institution.

Alamgir has sought to purchase 1 crore shares and Chisty 50 lakh, as per the letter from Farmers Bank to BB on November 20. The face value of each share is Tk 10.

Both of them resigned from the bank board on November 27 after the BB asked them to step down over their alleged involvement in financial scams that led to the bank's current precarious position.

Alamgir and Chisty hold 5.85 percent and 4.98 percent of the bank's shares respectively.

An individual must take prior permission from the central bank if he/she wants to hold more than 5 percent of a bank's shares, as per the Banking Company Act 1991. Besides, no one can hold more than 10 percent shares of a bank.

Farmers Bank had arranged a special board meeting in the second week of November where it was decided that the two former directors' holdings would be increased, according to the Farmers Bank letter.

Nayeem Chowdhury and Abu Alam, two shareholders of the bank, both agreed to sell 50 lakh of their shares to Alamgir, an Awami League lawmaker and former home minister. He is also chairman of the parliamentary standing committee on public accounts.

Chowdhury also gave the consent to sell another 50 lakh of his shares in Farmers Bank to Chisty.

But on December 4 the central bank rejected the proposal on the grounds that the move would further wring out depositors' confidence in the bank, said a BB high official.

Meanwhile, the cash-strapped bank on Sunday got the permission from Bangladesh Securities and Exchange Commission to raise Tk 500 crore by issuing non-convertible subordinated bond under the Basel III framework. A subordinated bond is a debt which ranks after other debts if a company falls into liquidation or bankruptcy. Because subordinated debts are only repayable after other debts have been paid, they are more risky for the lender of the money.

The bank has been trying over the last two months to issue the bond with the view to mitigating its ongoing acute liquidity crunch.

Farmers Bank will have to follow 15 conditions when raising the capital. It will have to issue the subordinated bond within one year of getting the approval from the BSEC; otherwise, the permission will be cancelled.

Accordingly, the bank wrote to the BB yesterday to get the no-objection certificate for issuing the bond.

As of September, the bank's non-performing loans stood at Tk 377.68 crore, up Tk 100 crore from a year earlier. The NPLs now account for 7.45 percent of the bank's total outstanding loans. Between September and November 2015, the BB conducted special inspections at three branches of Farmers Bank -- Gulshan, Motijheel and Shyampur -- and found gross violation of banking rules in disbursing loans of about Tk 400 crore.

Some of the directors of the bank were allegedly involved in sanctioning the loans by violating credit rules.

Last year, the central bank appointed an observer to the bank to help it restore corporate governance but the initiative went in vain.

The central bank finally intervened on November 27, instructing a full restructuring of the bank's board.