Half of top 20 defaulters from Chattogram: What went wrong?

Infograph: TBS

Chattogram, Bangladesh's major industrial city and home to its main seaport, has earned a new reputation as a hub of bad debt as most of these loans were provided only on good faith without collaterals.

Data disclosed in the parliament recently showed that nine of the country's top 20 loan defaulters are based in Chattogram, together accounting for Tk7,379 crore in soured loans against total default loans of Tk16,588 crore.

How it all happened 

Once Chattogram's Khatunganj was the main wholesale hub for imported consumer goods of the country. Traders who started businesses centering the market eventually became big importing ventures.

Banks also used to lend Khatunganj traders easily. The loans, basically in the 2006-2013 period, were disbursed under the loan against trust receipts (LTR) category for import of consumer goods on easy terms.

LTR financing is a short-term loan given to the importer to settle the payment of imported goods. The title of the goods is held by the bank until the importer settles the payment, but the buyer can take possession of the goods on trust for resale before paying the bank on the LTR due date. This type of loan involves business trust and trade documents instead of physical assets as a collateral.    

Consumer goods importers had easily received loans of hundreds of crores of taka as there was no condition regarding how much loan an entrepreneur will get or collateral security. In this, the import of related products often was much more than the local demand.

Besides, many new businessmen came into ship breaking during the 2000-2010 period, luring banks to catch up with new clients easily. Many bankers believe Chattogram banks over financed in the two sectors subsequently.   

But the sectors suffered huge losses in 2006 and onwards thanks to volatile global markets and a political instability at home. After recurring losses, many businessmen pulled out of the market, leaving the bank loans at risk.    

Of the nine Chattogram-based businesses, Western Marine Shipyard Limited has newly been added to the list, as the remaining eight firms had already been in the previous list.  

The enterprises are: Rising Steel, Mohammad Elias Brothers, SA Oil Refinery, Samannaz Super Oil, Saad Musa Fabrics, SM Steel Re Rolling Mills, Ehsan Steel Re-rolling and Siddiqui Traders. 

Bank officials and sector insiders attribute this to aggressive lending and over financing by banks to consumer goods importers in Chattogram's wholesale commodity market Khatunganj and ship breakers in the port city over the last two decades.

Being in the board of directors of the banks, some of the defaulters allegedly got the loans easily. Besides, other Chattogram-based defaulters reportedly managed bank loans due to their good ties with bank owners.  

Influence and unhealthy competition

Shahabuddin Alam, the chairman of Chattogram's top defaulting business SA Group, was the director of Mercantile Bank and head of the bank's risk management committee. There are allegations that the group got loans easily from various banks due to Shahabuddin's top banking role. 

Besides, Abu Alam of Ehsan Group was the director of Padma Bank. Aslam Chowdhury, the owner of Rising Group and a top BNP leader, reportedly secured bank loans under the influence of another BNP leader Morshed Khan – a sponsor director of AB Bank. 

Ali Tarek Parvez, executive vice president and Agrabad branch manager of NCC Bank, mentioned an unhealthy competition of banks in providing loans to Chattogram businesses.

The official said the country has more banks than the size of the economy. 

"That is why banks pressurise the officials for credit distribution. The officials, therefore, often endorse lending to businesses without considering the business volume or credit risk," he told The Business Standard.

Mainul Islam, an economist and former Chattogram University professor, said most of the defaulting businesses in Chattogram bought land with bank loans instead of trading.

"They [businessmen] have also laundered the money abroad or spent on luxury," he commented, suggesting banks to be more cautious in providing loans.

Defaulters pass the buck on external shocks 

Muhammad Mohsin, chairman of Saad Musa Group, said he has been in the garment business for 34 years and had no loan repayment issue with banks ever.  

"Recently, however, I am facing some problems with the repayment due to the ongoing war in Ukraine and the global recession," he told The Business Standard. 

Captain Tareque M Nasrullah, director of Western Marine Shipyard Limited, said efforts are underway to settle their bad loans with banks. "We have made some down payments against some of our loans. We are also trying to get new investment to establish shipbuilding as a new export sector." 

Abu Saeed Samrat, owner of Siddiqui Traders, said that doing business involves profit and loss. Imports of consumer goods suffered huge losses in 2006-2013 due to the plummeting domestic and international markets. 

"But banks have only adjusted the amount without refinancing us, which eventually put us out of business. But if the banks re-financed us, the debts could be paid off by doing business," he told The Business Standard.