How a bank operates in the highest disorder

A loan proposal is usually placed before the board of a bank after multiple layers of scrutiny to get final approval, but in the case of the National Bank, loans amounting to Tk600 crore were given to different business groups upon verbal instructions without complying with banking procedures.

An investigation carried out by the Bangladesh Bank in April revealed that the bank disbursed the loans in three months from the last week of December 2020 to March this year when no board meeting for loan approval was held.

The central bank investigation found that no banking process was followed in even disbursing a big amount like over Tk100 crore at a time to a single borrower.

Such loans are classifiable in terms of qualitative judgement, according to the report. 

The same irregularity was detected in the previous two investigations conducted in 2013 and 2014 and following the repetition of such malpractice, the central bank appointed an observer in the bank. 

In the previous investigations, the central bank found that the board meeting was irregular. Board members were rarely present in the board meetings. Meetings of other board committees, such as executive and audit committees that have vital roles in banking operations, were also irregular. 

Even after appointing an observer in the bank by the central bank, no improvement was found in corporate governance practice in 2021.

The Bangladesh Bank in its latest investigation report commented, "It has become a common habit of the National bank to disburse loans violating Bangladesh Bank rules and its own internal guidelines too."

However, the Bangladesh Bank in its investigation report mysteriously overlooked the malpractice of the board and made then acting managing director ASM Bulbul responsible for irregularities in the Tk600 crore loans.

When contacted, Bulbul said he disbursed the loans after being instructed by the board members. That is why the board did not raise an objection and gave ex post facto approval to all those loans. 

This is how the bank management works under tremendous interference by the board. 

Previously, at least four managing directors could not complete their respective tenures because of an inappropriate interference by the board. Therefore, no banker shows interest in joining the bank, resulting in many top posts remaining vacant for a long time. 

In this situation, the Bangladesh Bank has recently given approval to the appointment of acting managing director Shah Syed Abdul Bari under special consideration although he is not eligible to hold the post. 

According to Bangladesh Bank regulations, no banker with a third class degree in academic career will be eligible for holding a top executive post. Bari was approved for the post despite having a third class degree. 

When contacted, a top manager at the Bangladesh Bank said Bari was allowed to hold the top post on an urgent basis because the National Bank was not finding anyone suitable for appointing as its managing director even after the post had remained vacant for three months.

According to the Banking Companies Act, the post of managing director cannot remain vacant for more than three months. If it remains vacant for any reason, the central bank can appoint an administrator. 

The central bank executive said there are many eligible bankers in the market for becoming top executives at the bank, but nobody shows interest in joining the bank, which reflects a lack of corporate governance in the board. 

The National Bank's acting managing director could not be contacted over the phone despite several attempts.

The bank has been experiencing severe deterioration in its financial health owing to a lack of corporate governance in its board and management. The Bangladesh Bank's favour has kept the bank alive. 

For instance, the bank took provision forbearance of around Tk2,700 crore from the Bangladesh Bank to declare a minimum dividend for its stockholders for 2020.

A loan loss provision is an income statement expense set aside to cover risk of default loans. High default loans require high provisioning and high provisioning eats up a bank's profit.

Had the central bank not allowed provision forbearance, the bank would have suffered a huge loss. 

The vulnerable banking operation put depositors' money at risk as the bank has the third highest deposits – Tk42,200 crore – among private commercial banks as of March this year.  

The bank declared a 5% stock dividend for the last year and each share of the bank is being traded at below face value at the stock market. 

Irregular board meetings 

The latest investigation found that no board meeting for a loan approval was held in three months from 26 December 2020 to 31 March 2021. 

According to Bangladesh Bank rules, a bank can hold one or more than one board meetings in a month, but at least one board meeting is a must in three months. 

As the board takes the policy decision, regular board meetings reflect the corporate governance of a bank.

In the previous investigation report of 2014, the central bank found that the board held only 7 board meetings in one and half years from July 2012 to December 2013. Moreover, all board members were not present in the meetings. 

For instance, Selim Rahman was absent in all seven board meetings, while Rick Haque Sikder and Ron Haque Sikder were absent in five and four meetings respectively during the time. 

The Bangladesh Bank in the investigation report instructed the bank management to hold the board meeting regularly and ensure presence of the board members in the meeting.  

The executive committee of a bank has a vital role because committee members take decisions about loan proposals. The executive committee can hold a meeting any time. 

In the case of the National Bank, the executive committee did not hold a single meeting in more than one year from 2020 to March 2021, according to the investigation report.

During the period, many loans were approved and restructured by the acting managing director. Of them, 143 loans were disbursed violating rules. 

Moreover, loans were disbursed from different branches without approval from the head office, according to the investigation report.

The bank's executive committee has six board members and four of them from the Sikder family. They are Parveen Haque Sikder, Monowara Sikder, Ron Haque Sikder, Rick Haque Sikder, Khalilur Rahman and Moazzam Hossain.  

In the previous investigation conducted in 2014, the central bank also found the practice of not having regular meetings of executive and audit committees.

The investigation found that the executive committee held only 17 meetings in 2013. 

The investigation report advised the bank to make the executive committee vibrant and effective.

The role of the audit committee of a bank is to build an efficient and secure banking system. But, the National bank's audit committee held only four meetings in 2013.