Farmers Bank spirals towards insolvency

Trouble-hit Farmers Bank has twice failed to honour a cheque worth Tk 35.44 crore presented by Bangladesh Telecommuni-cations Company Ltd, in what can be described as the latest episode in the four-year old bank's spiral towards insolvency.

The development comes after Bangladesh Bank last month in a report to the parliamentary standing committee on the finance ministry said the bank does not have the capacity to pay back funds to depositors and other banks.

This prompted the state-owned telecom company to pull out all its funds from the bank, said a senior executive of BTCL.

Accordingly, the bank's Gulshan branch gave a pay order that BTCL deposited in its account with Sonali Bank on Tuesday. The pay order bounced back due to Farmers Bank having insufficient funds.

Sonali again presented the cheque on Wednesday only for it to bounce back for the second time, according to Mallik Abdullah Al Mamun, manager of Sonali's Sheraton branch.

Contacted, Prodip Ranjan Roy, general manager of BTCL, acknowledged that their cheque has bounced back twice.

Given the acute financial crisis Farmers Bank is mired in, BTCL is now worried that it will not be able to get its money back, Mamun said.

BTCL has written to the manager of Farmers' Gulshan branch to immediately take steps to release the funds. It has also forwarded the letter to the BB governor.

“Farmers Bank has sought time from BTCL to give back the deposit,” said a BTCL official.  AKM Shameem, managing director of Farmers Bank, declined to comment on the matter.

Farmers Bank has failed to maintain the statutory liquidity ratio and cash reserve ratio as stated in the Banking Company Act, as a result of which it has incurred penalty of Tk 18 crore so far.

It also could not pay back the amount borrowed from call money market.

The bank owes Tk 124 crore in the call money market and the amount is being rolled over since January, according to data from the BB.

In a desperate bid to attract funds, the bank is now offering up to 12 percent interest for deposit -- the highest in the market.

As of September, the bank's weighted average interest rate on deposits is 8.79 percent in contrast to the industry average of 4.9 percent.

The high interest rates have pushed up the bank's cost of funds, which in turn has sent its lending rate spiralling up to about 14 percent in contrast to the industry average of 9.45 percent.

As of August, the bank's total deposits amounted to Tk 5,170 crore and loan portfolio Tk 4,854 crore.   

The bank's advance-deposit ratio has been above 85 percent for several months, which goes against central bank rule.