Govt banks break exposure limit to serve big borrowers

In spite of being burdened with huge default loans and worsening financial performance, state-owned banks in the country are found to have been continuing to provide loans to large borrowers exceeding their single borrower exposure limits.

Out of the total large loans given by four state-owned banks in violation of the rule, loans of Tk12,000 crore of Sonali and Janata banks went into default in June this year, according to a report by the Bangladesh Bank.

The central bank presented the report in a meeting held last week with the managing directors of the four banks and the BB Governor Fazle Kabir in the chair.

According to the report, four public-sector banks – Sonali, Janata, Agrani and Rupali – disbursed loans to 20 of their large borrowers exceeding 25% of their total capital, while a memorandum of understanding signed with the Bangladesh Bank says the funded loan to a single borrower must be within 15% the bank's total capital.

Sonali bank, the largest state-owned bank in the country, provided loans to eight large borrowers exceeding 25% of its capital. Among those clients, five are private and the three others are government organisations.

Of them, three loans amounting to Tk2,017 crore went into default in June this year, according to the Bangladesh Bank report prepared on state-owned banks' performance.

The total amount of large loans disbursed by Sonali Bank stood at Tk1 trillion at the end of June.

Meanwhile, the scam-hit Janata Bank provided loans to five large borrowers violating the single borrower exposure limit, of which four are private and the other is a government organisation.

As of June this year, the total number of large borrowers of the bank is 22, of which seven have defaulted on loans amounting to Tk10,005 crore. The total volume of large loans of the bank stood at Tk30,372 crore at the end of the month.

For its part, Agrani Bank exceeded the single borrower exposure limit to provide loans to two of its large borrowers, while Rupali disbursed loans to four borrowers violating the rule. However, no loan was classified till June, the central bank data shows.

The four state-owned commercial banks accounted for 45% of the total default loans in the industry.

The public-sector banks, it appears, also showed favour to large borrowers by creating forced loans as the clients failed to make payments on due time.

The loan created by a bank to honour its own commitment may be defined as a demand loan or forced loan. Usually, a bank is forced to create this type of loan to meet its import obligations.

The four state-owned banks created forced loans amounting to Tk3,179 crore in the January-June period of this year, while the figure was Tk4,700 crore in twelve months of 2019.

Among all the banks, Janata Bank created the highest amount of forced loans, Tk2,807 crore, in the first six months of the current year.

The Bangladesh Bank in its report addressed various irregularities including classification and loan takeover by the state-owned banks.

Indicating Janata bank, it said the chairman of the bank was repeatedly requested by the central bank for the last two years to conduct a functional audit to find out incidences of loan forgeries in the bank, but the bank did not oblige.

Without mentioning any particular name, the report said a fresh loan was approved against a client who already had a bad debt. Despite having overdue and classified status, the loan takeover proposal was approved, it added.

Moreover, loans are being rescheduled taking advantage of the central bank's special facility to reschedule a classified loan by paying a 2% down payment, despite the fact that clients have been involved with loan forgeries, said the central bank report.