AB to Z: A love story gone downhill

A managing director of a private bank was seemingly proud as he said that he started his career with AB Bank, the first generation private bank in the country and a dream for youngsters to work in at the time.

It was the first bank to bring in corporate culture in the banking sector, and made many seasoned bankers who are now running many well-reputed banks like Bank Asia, Eastern Bank, Trust Bank, among others, he said.

Once "the dream bank", AB Bank has now turned into one that is no way close to the bankers' top list, making an example of how a lack of corporate governance can ruin a bank's reputation, he added.

AB bank ran nine months with vacancy in top managerial post since the last managing director, Moshiur Rahman Chowdhury, resigned from the post suddenly in October last year. Tarique Afzal, then deputy managing director, had been in charge of managing director's post during nine months as the bank had not been able to find a managing director even after offering comparatively high salary.

A bank cannot run for more than three months with the position of managing director remaining vacant, according to the Bank Company Act.

The bank offered Mohammad Mamdudur Rashid, additional managing director of UCB Bank, a salary above Tk 14 lakh to be its managing director.

Although this high salary offer seemed quite a miss-match to the bank's present financial condition (the offer seems to be high, even compared to offers that other banks with healthy financial condition would make for the position), the

Bangladesh Bank approved his appointment in May considering the work-experience of the candidate.

After all, the bank was badly in need of a managing director. Nevertheless, Rashid finally decided not to join.

When the bank found no other choice, it promoted Afjal from deputy managing director to managing director post in July.

The bank also finalised appointment of two deputy managing directors, offering each a salary above Tk 8 lakh.

However, the bank was unable to complete the recruitment process in the face of the central bank's objection. The salary offered was high in comparison with the offer of other banks of same category for the position (highest Tk. 6 lakh), the Bangladesh Bank had observed. As the bank's financial position is very weak, the central bank did not allow AB to hire management staff with such high salary.

The bank is running with three deputy managing directors, while other banks of similar size have six to eight deputy managing directors.

The management crisis adversely affected AB Bank's financial health: it experienced a 372 percent hike in non-performing loans in 2018, making the bank financially vulnerable.

Default loan, the main indicator of a bank's health, rose to 34 percent in December last year from a mere 7.15 percent in the same period of previous year, according to the bank's annual report.

On the other hand, its profitability fell drastically in the same period, putting gloom on the stock market investors.

The bank that once ranked one of the highest profit makers within the banking sector with profit above Tk 150 crore, made a tiny profit of Tk. 1.8 crore last year. Moreover, this profit seems to be exaggerated as it has a huge provision shortfall of Tk. 6,500 crore last year.

The Bangladesh Bank allowed the bank to maintain the shortfall for 10 years, from 2019 to 2028.

Banks are required to keep aside the equivalent amount of its non-performing loans as provision.

If the provision shortfall was maintained properly, the bank would incur loss of several thousand crore taka with a huge capital deficit. Despite taking exemption from maintaining provision shortfall, the bank still remained short of capital to the tune of Tk. 609 crore last year.

The bank remains in "Z" category on ther stock market since 2017 as it declared no dividend. On the Dhaka Stock Exchange (DSE) each share of the bank is  trading  at below the face value of Tk. 10.

With a loss in reputation, the bank has also been losing depositors, which is alarming as deposits consist the heart of a bank. The bank lost deposits to the tune of Tk 50 crore the last year, bringing down the remaining total deposit to Tk. 23,544 crore.

Though, the bank's deposit has persistently been falling, the bank did not stop its aggressive lending, as it violated even the authorised ceiling of loan deposit ratio in the process.

The loan deposit ratio of the bank stood at 91.09 percent at the end of 2018, far above of the authorized limit of 85 percent, meaning that a bank can lend Tk 85 against a deposit of Tk 100.

The loan portfolio of the bank increased to Tk. 24,107 crore in the last year, showing an increase of Tk. 1,142 crore.

Failure of the board, which mostly consisted of nominated directors, to take necessary and proper actions in timely fashion seems to be a reason for the bank's ailment.

AB Bank is almost a monopolistic organization with M Morshed Khan, founder of the bank and his family owned Pacific Group, holding the majority shares.

Some 90 percent of nominated directors are appointed by Khan and the bank is dictated by his family members.

Although the family members hold above 30 percent stake in the bank, they are not directly present on the board.

Among the nine directors, including two independent directors, all except two from Elite Paint group, has been nominated by Khan and his business firms.

Business failure of Pacific Telecom, known as Citycell, badly impacted the bank's health as the business firm had outstanding loan to the tune of above Tk 700 crore with the bank. Khan, who was also the former foreign minister of BNP-led government, owned the Citycell.

A case concerning alleged money laundering of above Tk 320 crore by Morshed Khan and his family members also contributed to the bad reputation of the bank. The money laundering case is still being investigated by the Anti-Corruption Commission (ACC).

Appointment of Wahidul Haque, a tea garden manager, as chairman of AB Bank was considered as a blunder. Haque, nominated by Morshed Khan, joined the bank in 2007 as its chairman who does not have any knowledge of financial sector.

Majority of the financial irregularities and corruption in the bank took place during his tenure as chairman. It seems that he let the board do as it like, without resisting the board's misdeeds.

In December 2017, he resigned from the board  at the directive of the Bangladesh Bank owing to his alleged involvement with the money laundering.

When the bank was on the verge of collapse, Mohammad A. (Rumee) Ali, former deputy governor of the Bangladesh Bank, took the helm of the bank as chairman. He was also picked by Morshed Khan, representing Pacific Traders.

When contacted, Ali denied to make any comment on the bank's financial health.  Regarding long time vacancy in top managerial post, he said the bank's choice was Mohammad Mamdudur Rashid but he did not join.

In this perspective, the bank decided to appoint Afzal.