Top borrowers Beximco, S Alam now top defaulters, posing threat to dozens of banks

Summary:

• Banks struggle to recover payments since Awami League's government fell
• Beximco and S Alam control 15.17% of total bank loans
• S Alam embezzled Tk93,364 crore via fraudulent shell companies
• Default shocks threaten banking sector's capital adequacy and stability
• Government considers selling Beximco companies to address loan issues

The country's top two borrowers, Beximco and S Alam Group, have emerged as the top defaulters following the fall of the Sheikh Hasina-led government, leaving over a dozen lenders in trouble and exposing stability of the banking sector to significant risks.

As of September last year, Beximco topped the defaulter list with defaulted loans totalling Tk23,120 crore, while S Alam Group ranked second with Tk11,734 crore, according to a Bangladesh Bank report listing the top 10 defaulters obtained by The Business Standard.

Together, the two groups account for defaulted loans of Tk34,854 crore – over 12% of the total defaulted loans amounting to Tk2.84 lakh crore in the banking sector.

However, the defaulted amounts of these two groups are expected to rise further, as banks have not received payments from them since the fall of the Awami League government on 5 August last year, a senior central bank executive said.

At least 20 banks are involved with these groups, but bankers say they have been unable to contact Salman F Rahman, vice-chairman of Beximco, who is in jail, or Saiful Alam Masud, chairman of S Alam Group, who is reportedly living abroad.

A director of Islami Bank, appointed under the interim government after dissolving the previous board, told TBS that Saiful Alam, the bank's top borrower with direct and indirect loans totalling at least Tk1 lakh crore, had committed to repaying Tk10,000 crore through his representatives but is now unreachable.

Mohammad Muslim Chowdhury, chairman of Sonali Bank, told TBS, "Among state-owned banks, we are in a relatively better position in terms of lower default loans. Beximco Group was one of our regular borrowers. However, after 5 August, they stopped loan repayments, leading to their loans becoming classified as defaults."

The top 10 defaulters, including Beximco and S Alam, accounted for a total of Tk51,856 crore in default loans as of September 2024, which was 18.26% of the total default loans in the banking sector, according to Bangladesh Bank data

"Currently, our default loan ratio stands at 16%, but it could rise to a maximum of 19% by December," he said.

Zahid Hussain, former lead economist at the World Bank Dhaka office, told TBS that large groups have withdrawn significant loans from the banking sector, but the quality of their assets is very poor. He emphasised that these groups have assets abroad, and the government must take steps to bring them back.

He further said, "We have witnessed corruption involving some businessmen during every government's tenure. However, no exemplary action has been taken against them so far. If this government takes exemplary measures against them, it will set a precedent for the country in the future."

Beximco, S Alam Total Loans Tk2.50 Lakh Crore

Bangladesh Bank has so far identified a total of Tk2.50 lakh crore in loans lent to both Beximco and S Alam Group as of September 2024, which accounts for 15.17% of the total loans in the banking industry.

Stress test results from the Bangladesh Bank as of end-December 2023 show that defaults by the top three borrowers would likely have the most adverse impact on the banking sector's resilience in terms of capital adequacy, followed by a 3% increase in default loans.

For both shocks, the CRAR (Capital to Risk-weighted Assets Ratio) of the banking sector would fall below the minimum regulatory requirement, according to the stress testing report.

Beximco has a total of Tk50,000 crore in loans with 16 banks and seven non-bank financial institutions, of which Tk23,120 crore has turned into defaulted loans with eight banks, according to a Bangladesh Bank statement sent to the High Court.

State-owned Janata and Sonali Banks are the most affected by Beximco's defaulted loans. Of Beximco's total defaulted loans, Janata accounted for Tk19,507 crore and Sonali for Tk1,544 crore as of September last year.

Meanwhile, the interim government plans to sell the ownership of 32 companies under the Beximco Group as a long-term solution to the ongoing workers' unrest over unpaid salaries and allowances.

The decision was made during the first meeting of the Advisory Council Committee on the labour and business situation of Beximco Industrial Park, held at the Secretariat on 28 November.

Janata Bank has been instructed to finalise an Expression of Interest (EoI) for the sale of "B" category companies.

Earlier, Beximco topped the defaulter list in 2009 when Sheikh Hasina assumed power in her first term of a 15-year regime, and Salman F Rahman became her private sector adviser.

According to the defaulter list presented in parliament by then Finance Minister AMA Muhith, Beximco Group topped the list, with its Beximco Textiles Ltd alone defaulting on Tk353.89 crore.

However, Salman F Rahman was not listed as a defaulter by any bank during the 15 years of the Awami League regime while serving as Sheikh Hasina's private sector adviser.

S Alam Group's Tk1.90 Lakh Crore Loan from 4 Banks

S Alam Group has defaulted on Tk11,734 crore so far with Janata and Union Bank as of September last year.

The group has taken loans of Tk1.90 lakh crore from four banks out of the eight banks under its control through direct and indirect shareholdings, according to a Bangladesh Bank report sent to the Anti-Corruption Commission (ACC).

Of this, Tk93,364 crore was embezzled through fraudulent loans from four banks using fictitious shell companies, according to sources from the Bangladesh Financial Intelligence Unit (BFIU).

This includes Tk1,05,483 crore from Islami Bank, Tk47,610 crore from First Security Islami Bank, Tk23,525 crore from Union Bank, and Tk13,250 crore from Global Islami Bank.

The report states that the group's owner Saiful Alam and his affiliated companies obtained this amount of money from the four banks under his control, both in his name and through intermediaries, exerting influence. S Alam had both direct and indirect involvement in this.

Earlier, in October last year, the governor of the central bank stated that close associates of the Awami League, including wealthy business figures, had embezzled nearly $17 billion from the banking sector. Of this, S Alam alone is said to have smuggled out at least $10 billion.

Dr Iftekharuzzaman, executive director of Transparency International Bangladesh, told TBS, "With the help of DGFI, S Alam has captured the banks. As a result, the money of these banks was smuggled out. The banks provided assistance in this."

He emphasised that those responsible must be brought to justice. "If accountability is ensured, money laundering will be stopped in the future," he added.

Who Are the Other Major Defaulters?

The top 10 defaulters, including Beximco and S Alam, accounted for a total of Tk51,856 crore in default loans as of September 2024, which was 18.26% of the total default loans in the banking sector, according to Bangladesh Bank data.

Out of the total 10 defaulters, seven defaulted with Janata Bank.

The third-highest defaulter is AnonTex Group, with a default loan of Tk7,686 crore with Janata Bank.

Other defaulters include Maisha Group, which defaulted on Tk2,754 crore with National Bank; FMC, which defaulted on Tk2,143 crore with National Bank; Crescent Group, which defaulted on Tk2,038 crore with Janata Bank; Ratanpur Group, which defaulted on Tk1,226 crore with Janata Bank; Jakia Cotton Textile, which defaulted on Tk1,209 crore with Agrani Bank; Rimex Footwear, which defaulted on Tk1,133 crore with Janata Bank; and Ranka Group, which defaulted on Tk1,131 crore with Janata Bank.