Cenbank restructures National Bank board for irregularities, Sikder brothers out

The Bangladesh Bank has dissolved the board of directors of National Bank on the grounds of numerous irregularities, including loan approvals made in clear violation of regulations, abuse of authority by members of the board, and questionable practices surrounding the election of directors.

The banking regulator has, meanwhile, formed a new board, excluding the bank's late founder Zainul Haque Sikder's wife Monowara Sikder, and sons Rick Haque Sikder and Ron Haque Sikder.

In a letter issued to the managing director of the private-sector lender on Thursday, the Bangladesh bank said, based on the recommendation of the Bangladesh Securities and Exchange Commission (BSEC), the existing board of directors of the National Bank has been dissolved to protect the interests of depositors and the public.

The banking regulator has charged the board with several offences, including "approving loans in violation of lending rules and regulations, unwanted interference by the board in the management of the bank, abuse of the power of the board to concentrate the shares of the bank within the same family, and creating various complications in the process of director selection or re-election," reads the letter.

Other charges brought against the board include "financial irregularities committed by the directors in front of the board, the deterioration of the financial condition of the bank due to policy-making weaknesses of the board, and the board's involvement in activities against the interests of companies and depositors, disrupting banking good governance and discipline."

Mezbaul Haque, spokesperson for the Bangladesh Bank, said, "The board's responsibility was to protect the interests of depositors. As they could not fulfil that duty, the board has been dissolved, and a new board has been formed."

A new board formed 

The Bangladesh Bank has formed a new seven-member board, appointing three independent directors and four sponsor-directors.

The independent directors include Syed Farhat Anwar, a former professor of the Institute of Business Administration at Dhaka University; Md Sirajul Islam, a former executive director of the Bangladesh Bank; and M Kamal Hossain, a former managing director of Southeast Bank.

Among them, Professor Anwar has been appointed chairman of the board on the condition that he resigns from the post of independent director at Meghna Bank.

On the other hand, the four new directors are Parveen Haque Sikder, entrepreneur director Khalilur Rahman, representative director Md Shafiqur Rahman on behalf of Sikder Insurance Company, and director Moazzem Hossain as an entrepreneur shareholder.

After the death of its chairman Zainul Haque Sikder, his wife Monowara was elected as the chairman of the bank. At the same time, two sons Rick, Ron, and daughter Parveen Haque Sikder were elected as entrepreneurial directors.

The 40th Annual General Meeting (AGM) of the bank was scheduled for 21 December, but the chamber judge of the Supreme Court's Appellate Division imposed a status quo on the AGM until January 16 in response to an appeal filed by Parveen Haque Sikder.

Financial performance

National Bank incurred a heavy loss of Tk1,123 crore in the first nine months of 2023, which was 214% higher than the previous year at the same time.

According to its disclosure published on stock exchanges, the consolidated loss per share stood at Tk3.49 during the January-September period.

The bank said it had to classify a significant amount of loans as borrowers could not repay loan instalments in time because of a liquidity crunch in the market due to higher inflation in the world economy as well as in Bangladesh.

Tk335cr scam rattles National Bank

"Interest on such loans and advances could not be applied to income. Consequently, profitability and EPS (earnings per share) decreased significantly," reads the disclosure.

In 2022, the bank incurred a huge loss of Tk3,260 crore as its borrowers could not repay their instalments on time, and a significant amount of loans became classified.

Due to the high loss, the bank failed to pay any dividends to its shareholders in 2022. It did not pay any dividends in 2021 as well.

The default loan rate of the bank stood at 29.47% in September this year, which was the second highest among private banks.

It also faced a whopping provision shortfall of Tk13,797 crore as a consequence of high default loans.

Financially troubled bank eyes raising Tk1,000cr from foreign sources

Provision is the fund set aside by banks to pay for anticipated future losses. High-default loans require banks to maintain higher provisioning, which is kept from their profits.

Rising provision shortfalls cause banks' capital to erode, reducing lending capacity and, ultimately, putting public money at risk.

It was identified as one of the ten weak banks by the Bangladesh Bank after Governor Abdur Rouf Talukder took charge.

The central bank suspended the lender's loan activities in May 2021 against the backdrop of a liquidity crisis caused by huge loan irregularities.

Later, the suspension was withdrawn in December 2021 in the wake of an improvement in the liquidity situation.

But, even after the long suspension, loan-related irregularities continued to take place in the bank, prompting the central bank to go for further suspension in May last year. However, this time, the suspension was partial, limiting its lending.

National Bank shares were traded at Tk8.30 each yesterday, which was below their face value of Tk10 each, at the Dhaka bourse.