Troubled Union, Exim banks get Tk550cr liquidity support from Sonali

Guaranteed by the central bank, state-owned Sonali Bank is extending Tk550 crore in fresh loans to two struggling private banks — Union Bank and Exim Bank — both hit by loan scams and various irregularities.

According to central bank data, Exim Bank is getting Tk400 crore, while Union Bank Tk150 crore.

However, Union Bank requested for Tk350 crore support. Of this amount, Tk150 crore has been approved, with the possibility of additional support in the future, according to a senior official from the bank.

Bankers told TBS that inter-bank liquidity support has begun to restore customer confidence in weak banks, leading to a reduced urgency to withdraw deposits. However, these banks still cannot meet customer demands for deposit withdrawals.

The Bangladesh Bank has initiated efforts to manage funds from the interbank market to address the crisis faced by troubled banks. Ten strong banks have agreed to offer loans to struggling banks under the guarantee of the central bank.

Recently, during a meeting with Bangladesh Bank Governor Ahsan H Mansur, the managing directors of these banks consented to provide liquidity support. 

In the first phase, five strong banks lent Tk975 crore to four weak banks. In the second phase, three strong banks lent another Tk1,480 crore to five banks, including the initial four.

Now, in the third phase, Sonali is lending Tk550 crore to two banks — Union and Exim.

Is continued support for troubled banks justified?

Concerns have been raised regarding the liquidity support provided to keep troubled banks afloat.

A senior central bank official, on condition of anonymity, told TBS, "Previous boards of the weak banks have diverted thousands of crores of taka. I see no reason to keep these banks operational using funds from other banks or through central bank liquidity guarantees."

According to central bank data, Union Bank has been unable to maintain its Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) since November 2022, resulting in a deficit of Tk1,287 crore. 

Additionally, the bank has a current account deficit of Tk2,209 crore with the central bank and has borrowed Tk295 crore against its Bangladesh Government Islami Investment Bond (BGIIB) fund, data shows.

"It is not prudent for the central bank to sustain liquidity guarantees amounting to hundreds of crores when the bank faces such significant deficits," said the central bank official.

A majority of loans from the private sector lender, Union Bank, have been taken by the S Alam Group, which was in control of the bank during the previous Awami League government's tenure. 

The S Alam Group alone has borrowed around Tk18,000 crore from this bank, accounting for 64% of its total loans. These loans were secured through suspicious transactions that were not backed by collateral, as revealed in central bank inspections.

Additionally, the bank's internal documents indicate that 42% of the bank's total loans are in default, although the bank reported to the central bank that defaulted loans were below 4%.

A month ago, the Bangladesh Bank restructured the board of directors of Union Bank. Five independent directors have been appointed to the board.

Sources indicate that the influence of S Alam within the bank remains. Central bank officials are struggling to obtain accurate information regarding S Alam's loans and deposits, making it difficult to ascertain the bank's true financial condition.

Meanwhile, Union Bank's Managing Director, ABM Mokammel Hoque, has not been attending the bank since October 9. He has voluntarily gone into hiding and even relocated his family to a safe place before doing so. From the perspective of the bank's directors, he is currently unaccounted for.