When a defaulter leads a bank

SM Amzad Hossain, the chairman of the new generation South Bangla Agriculture and Commerce (SBAC) Bank, defaulted on Tk58.61 crore loans with Janata Bank for the last one year.

Amzad, who is also the chairman of Lockpur Group, was labelled a "habitual defaulter" by the Bangladesh Bank due to repeated rescheduling of loans of his companies instead of paying money back to the lenders.

According to the bank company act, a defaulter cannot hold the directorship of a bank. The Bangladesh Bank is supposed to remove him from the post. But inexplicably, the central bank did not take any action despite having the record of his defaulter status.

When the existing law about defaulters is being ignored, the government is going to make stringent legal provisions against wilful defaulters.

In December last year, the board of Janata Bank approved the rescheduling of the Tk58.61 crore loans against two companies of Lockpur Group named Eastern Polymer and Moon Star Polymer for 10 years, with a two-year moratorium period, subject to approval from the central bank.

The loans were given in the form of letters of credit (LC) in 2018 and 2019 from the Dilkusha branch, hiding the borrower's default status with the Khulna Corporate branch of the bank. Moreover, loans of those companies were rescheduled for the fourth time by the Khulna Corporate branch.

According to a circular of the Bangladesh Bank, if a loan becomes default after the third rescheduling, the borrower will be treated as a habitual loan defaulter and the bank shall not consider further loan rescheduling for him.

Under the circular, the central bank served a show cause notice to Janata Bank in January this year, asking them to explain why a habitual defaulter's loan rescheduling was approved by the board.

The rescheduling will be effective, subject to nod from the central bank. But the central bank has not given any decision yet.

The Bangladesh Bank kept the decision pending after an observation on serious loan irregularities of multiple companies of Lockpur Group. In an observation report, the central bank said, "The loans of Tk58.61 crore remained unpaid since 2019. Amzad, who is the owner of the two companies, is also the chairman of SBAC Bank. So, the Banking Regulation and Policy Department should take necessary actions."

When contacted, Md Serajul Islam, executive director of the Bangladesh Bank and also its spokesperson, said they have information about loan irregularities of Lockpur Group and that is why the loan rescheduling approval was not given.

The Bangladesh Bank is now investigating all loan status and allegations of loan irregularities against Lockpur Group before taking action against Amzad, he said.

The investigation is being delayed due to the Covid-19 lockdown, said another top manager of the Bangladesh Bank. 

When contacted, Amzad admitted that he had defaulted on loans with Janata Bank but said the board of the bank approved the rescheduling of his loan for 10 years with a two-year moratorium period.

The rescheduling proposal is yet to be effective as the central bank did not give the decision, he said.

He also said he could not pay loan instalments as 90% of his businesses are now shut down.

When asked how he would pay instalments if the rescheduling was approved as his businesses remained closed, he said he had no capacity to make payments and that is why he had sought the two-year moratorium period.

He said he would be able to pay if his businesses recovered by those two years.

The Janata Bank managing director was called several times and this correspondent even visited his office to talk about the issue of Lockpur Group's financial irregularities, but he could not be reached.

Lockpur Group's total loan with Janata Bank is Tk573 crore, of which Tk26.63 crore remained beyond the borrower's limit. The bank was supposed to adjust the loan amount by bringing it down within the borrower's limit, but it did not do so. Rather, it continued to renew the loan account of the borrower, according to bank insiders.

According to the Credit Information Bureau (CIB) database until 29 September last year, the borrower has Tk196 crore overdue, which means he failed to pay on time. Moreover, Tk1 crore was special mention accounts, which shows symptoms of bad asset quality, while Tk11 crore was sub-standard, which means classified asset that has been non-performing for less than 12 months, and Tk50 crore was bad loan.

Though the borrower was a defaulter with Tk50 crore with other banks in the CIB database of 29 September 2020, Janata Bank in its memorandum mentioned that the bad loan amount was rescheduled on 15 September last year. However, this information was not verified by the Bangladesh Bank.

Lockpur Group is also involved in tax evasion in addition to loan irregularities. The National Board of Revenue recently cancelled the licences of four companies of the group for avoiding customs duty by misusing bonded warehouse and also fined them Tk38 crore.

The companies are Bangladesh Poly Printing Int'l Ltd, Moon Star Polymer Export, Eastern Polymer and Alpha Accessories, and Agro Export.

Khulna Printing and Packaging Ltd, another affiliate of Lockpur Group which is listed on the Dhaka Stock Exchange, is also in dire straits. The company raised Tk40 crore from the stock market during the listing year in 2014 but within two years, it was downgraded to the "Z" category from "A", making stock investors disappointed.

When a company declares dividends above 10%, it is considered an "A" grade company. If the dividend is below 10%, it is a "B" grade company it will be categorised as a "Z" grade company if there is no dividend.

Performance of SBAC Bank

The new generation bank started its journey in 2013 and Amzad has held the post of the bank's chairman as a sponsor director since the beginning.

He has loans with SBAC Bank against which payment is irregular like other banks, according to bank officials.

The default loan of the bank was nil until 2016. However, the default loan saw a sudden big jump to 6% in 2019 from 1% in the previous year.

Though default loans in the banking industry declined significantly in December last year due to relaxed loan rescheduling and suspended loan classifications amid the pandemic, only SBAC saw no change in its default loan rate, maintaining it at above 6%.

The bank lost Tk400 crore deposits in the first nine months of last year from the previous year's figure. When the market average deposit rate came down to 4% in February this year, SBAC Bank was hunting for deposits at 6%, according to the Bangladesh Bank data.

The total deposit of the bank stood at Tk6,753 crore until September last year.