Bangladesh Bank looked away as tycoons borrowed at will from 2 banks
"What is this irrelevant talk? Did you not find anyone else to call? Who did you call? Those who took loans will return the money on time."
On edge -- is what best describes the sensation surrounding the banking sector. But the Bangladesh Bank higher-ups were warned as early as October 2021 that such a situation might transpire. Yet, no definitive action was taken then.
A report prepared by a central bank department in October 2021 based on loan positions of 2020 expressed concern that four business tycoons had taken Tk 21,063.58 crore from Janata and Islami banks, two troubled lenders.
The borrowers are: S Alam Group's chairman Mohammed Saiful Alam and four members of his family, Exim Bank chairman Md Nazrul Islam Mazumder and his wife, IFIC Bank chairman Salman F Rahman and SBAC Bank chairman Abdul Kadir Molla.
Alam and his family members, who have substantial stakes in eight financial institutions, accounted for 57.7 percent of the sum, according to the report.
Disbursing such large amounts of loans to so few borrowers, who are all directors of various banks, may put the depositors' money at risk and hamper the banks' lending activities should they fail to repay the money for any reason, the report said.
Subsequently, it called for a review of the central bank policies that allowed the borrowers to take such large loans and also comprehensively inspect whether the funds are being put to good use.
If proper use of the loans is not ensured along with the realisation of the sums, it may pose a big risk to the banks' balance sheets, said the report, which did not specify whether the loans had gone bad.
But BB authorities sat on the recommendations, The Daily Star has learnt from multiple people with knowledge of the matter.
The central bank declined The Daily Star's request for comment.
From Janata Bank, Rahman, Molla, Alam, his wife Farzana Parveen and brother Abdus Samad took Tk 12,003.86 crore, which is 21.95 percent of the state bank's outstanding loans at the end of 2020.
"There was a serious management failure in the central bank's higher-ups, which is why such large loans were concentrated to a few borrowers."
From Islami Bank, Alam, who is also the chairman of First Security Islami Bank, his son-in-law Belal Ahmed, his relative Shahana Ferdous, Mazumder and his wife Nasreen Islam, and Molla took Tk 9,059.72 crore, which is 9.2 percent of the Shariah-based lender's outstanding loans at the end of 2020.
To ensure that banks do not become hostage to the vagaries of business fortunes of a select few borrowers, BB has placed the guardrail of single borrower exposure limit, which bars banks from lending more than 25 percent of their capital to a single person, entity or business group.
If any bank must disburse a loan surpassing the limit, it has to take prior approval from the central bank.
Both Janata and Islami breached the rule in many instances for the eight borrowers with permission from the central bank, the banks' managing directors told The Daily Star. This raises questions about the need for having such a ceiling in the first place.
In fact, there has been no report of the central bank taking any exemplary action against banks for lending beyond the limit in recent times.
At the end of last year, the same four S Alam concerns were among the top 31 borrowers of the two banks, with their outstanding dues amounting to Tk 18,731.22 crore.
Also among Islami's top 31 borrowers were five more companies belonging to S Alam family members; their total dues amount to Tk 6,010 crore.
The loans extended to the Chattogram business giant and its affiliate companies by Janata Bank are mostly working capital, whose maximum repayment tenure is one year, according to Abdus Salam Azad, the state-owned lender's MD since 2017. Those loans are renewed every year.
"We have been lending to S Alam Group since 2006 and all loans are regular," he added.
The funds disbursed to the large borrowers would not create any risk to Islami Bank's depositors' money as the loans are still regular, said its MD Mohammed Monirul Moula.
Asked about the bank's excessive lending to S Alam Group and its affiliate companies, Moula, who took charge last year, said: "We have been maintaining a business relationship with S Alam Group for 35 years now."
Founded in 1985 by Alam, a relative of former Awami League politician Akhtaruzzanan Chowdhury Babu and Land Minister Saifuzzaman Chowdhury, S Alam Group has grown into one the largest conglomerates in Bangladesh.
Its interests range from commodity trading to fishery, from construction materials to real estate, from textiles to media, from intercity buses to shipping, and from power and energy to banks and insurance.
The group has been in the news recently for its alleged borrowing of upwards of Tk 30,000 crore from Islami Bank, where it has 26.73 percent stakes through its representative companies, shows the Shariah-based lender's internal documents.
As per banking rules, S Alam Group and its affiliate companies can take a maximum of Tk 215 crore from the bank.
As of September, the total outstanding loans of Islami Bank, Bangladesh's largest private sector bank, stood at Tk 145,897 crore, according to data from BB.
In response, the High Court on December 4 directed S Alam Group's chairman to explain its alleged excessive borrowing.
Contacted, Alam said the loans taken by himself and his family members would not create any problem for the two banks.
Asked whether he and his family members would be able to repay the loans on time, he said: "What is this irrelevant talk? Did you not find anyone else to call? Who did you call? Those who took loans will return the money on time."
Like Alam, Mazumder, the chairman of Nassa Group, dismissed the observation made in the report.
"It is a wrong perception -- Nassa is a flowing river. We are one of the largest exporters in the readymade garment sector -- the valuation of Nassa Group is Tk 12,000-15,000 crore. We do not have any bad record of repaying bank loans."
However, the central bank report mentioned that Tk 163.42 crore of loans provided by Janata to Mazumder, who is also the chairman of the private bank owners' forum Bangladesh Association of Banks since 2008, has defaulted.
Mazumder and his wife, who is a director of Exim Bank, took loans amounting to Tk 1,149.22 crore from Islami Bank, according to the BB report.
At the end of 2021, Nassa Group -- whose interests include garment, real estate, banking, stock brokerage, education and travel -- was among the top 31 borrowers of Islami Bank with an outstanding amount of Tk 1,612.4 crore.
"My companies have a business relationship with Islami Bank for 33 years now. Moreover, Nassa Group has been one of the top exporters of Islami Bank for the last 12 years," he added.
Similarly, Rahman, who is also the vice-chairman of Beximco Group and private industry and investment advisor to Prime Minister Sheikh Hasina, played down the central bank report's concerns.
He took loans amounting to Tk 5,610.3 crore from Janata Bank, according to the BB report.
"Beximco Group has been one of the leading clients of Janata Bank for many years now. It is normal for any business the size of Beximco to borrow and repay its loans, which we have been doing for the past few decades. All our loans are secured," he told The Daily Star through a spokesman.
Founded in 1972 by Rahman and his elder brother as a commodity trading company, Beximco Group today has interests in textiles, pharmaceuticals, PPE, ceramics, real estate, construction, trading, marine food, ICT, media, DTH, financial services and energy.
At the end of 2021, Beximco Group concerns were among the top 31 borrowers of Janata Bank, with total loans amounting to stood at Tk 10,439 crore.
Molla, also the chairman of Thermax Group, declined The Daily Star's request for comment.
Thermax Group was founded in 2006 after Molla went on voluntary retirement from Titas Gas in 1997. As a sales assistant of the state-owned natural gas distributor, Molla amassed illegal wealth of crores of taka, according to a 2008 investigation of a special task force of the National Coordination Committee against Corruption and Serious Crimes.
Molla took loans amounting to Tk 2,141.51 crore from the two banks, as per the BB report.
Thermax Group was among the top 31 borrowers of Janata Bank at the end of 2021, coming in at number 10 with its dues amounting to Tk 1,623 crore.
"There was a serious management failure in the central bank's higher-ups, which is why such large loans were concentrated to a few borrowers," said Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh.
The central bank report has given an indication that the higher-ups did not take proper initiatives despite the junior and mid-level employees of the BB having recommended actions, said Mansur, also the chairman of Brac Bank.
"The borrowers who took the loans are politically connected, which is why the central bank might have not followed its own rules," said Fahmida Khatun, executive director of the Centre for Policy Dialogue.
The financial risk to a bank will not lessen even if it takes prior approval from the central bank to disburse a loan surpassing the single borrower exposure limit, said Zahid Hussain, a former lead economist of the World Bank's Dhaka office.
"If a few borrowers capture the banking sector this way, the small and medium borrowers will not get loans, which will create a roadblock for economic growth," Khatun said.
The central bank should investigate the issue immediately such that further loan concentration can be avoided, said Mansur, also a former economist of the International Monetary Fund.
"Now is the time to take action on the part of the central bank to restore the confidence of commoners in the banking sector," Khatun added.