How central bank overlooks violations of National Bank for years

The National Bank, a private commercial bank, has been disbursing loans violating the authorised limit of 85% for the last four years since 2017, but the Bangladesh Bank has mysteriously overlooked the issue.

Although last year the central bank raised banks' advance-deposit ratio (ADR) by 2% to 87%, enabling banks to lend more at this pandemic time, the rate reached 93% for the National Bank.

It means if the bank has a deposit of Tk100, a loan of Tk93 has been disbursed against it.  In 2020, the bank disbursed around Tk41,000 crore in loans against a deposit of Tk43,000 crore. Lending beyond the authorised limit puts deposits at risk. 

With a lack of governance and no central bank's monitoring, the bank's key financial indicators, including default loan rate, share price in the stock market and profitability have gradually deteriorated.

The central bank had played the role of a mute spectator until the death of National Bank Ltd Chairman Zainul Haque Sikder on 10 February.

And, the bank has been brought under strong surveillance that brought forth a grim picture of the first generation bank. Alongside fragile financial health, managerial problems over appointing the bank's managing director and conflicts of the Sikder family over taking control of the board of directors came to the fore.

The National Bank has not been complying with the ADR in disbursing loans since 2017, but the Bangladesh Bank has finally acted.

On 3 May, in a letter sent to the managing director of the National Bank, the central bank said the commercial bank will not be able to issue new loans if the bank's ADR is not reduced to 87% set by the central bank.

The central bank has also fixed large loans and single customer loan limits for the National Bank.

Besides, the approval of the central bank has been made compulsory in appointing from a deputy managing director to lower-rank senior officials in the bank. Usually, such recruitment does not require permission from the Bangladesh Bank.

The Bangladesh Bank also wanted to know about loan recovery from top customers of the bank.

The letter, signed by Bangladesh Bank's Department of Off-site Supervision (DOS) General Manager Md Anwarul Islam, said no new loans can be disbursed until the bank's ADR limit is lowered to 87%, as fixed by the central bank.

Currently, the National Bank's deposits stand at around Tk43,000 crore and loans at around Tk41,000 crore. The loan-to-deposit ratio is 92%.

If the amount of loan is given beyond the fixed limits, the deposit falls at risk. Therefore, to protect the interests of the depositors, the National Bank has been barred from lending money, the letter said.

Such instructions have been given to stop the distribution of anonymous loans by the National Bank, it read.

According to the letter, after the death of National Bank Chairman Zainul Haque Sikder on 10 February, his wife Monowara Sikder took over the position. Although no board meeting has been held since then, the bank has given a loan of around Tk500 crore. Questions have been raised about the beneficiaries of the loans disbursed.

After the death of the chairman, a power struggle over control of the bank started within the Sikder family. Some top officials of the bank also got involved in irregularities. As a result, the first generation bank has been identified as a troubled bank.

The central bank's directive further states that growth in loan disbursement cannot exceed 10%. Besides, the amount of large debt cannot be more than 5% of the repaid capital or more than Tk153.32 crore. The current paid-up capital of the bank is Tk3,066.42 crore.

On the other hand, the single borrower exposure limit cannot exceed Tk306.64 crore (including funded and non-funded). However, this condition will not be applicable in case of loan renewal.

The National Bank will not be able to take loans from any other bank. The loan repayment information of the top 20 borrowers of the bank has to be reported to the DOS of the central bank every month.

In addition, in case of re-appointment or contractual appointment of advisers, consultants or senior officers of the bank, the approval of the central bank is required.

Health of National Bank

The number of default loans has almost doubled to Tk2,000 crore over the last five years. Some 90% of which is bad loans that cannot be recovered easily.

The impact of deteriorated financial health fell on the bank in 2017. In that year, the bank's profit decreased by Tk81 crore to Tk479 crore year-on-year. In 2018, the profit further dropped by another Tk94 crore to Tk385 crore. In 2019, the National Bank's profit increased a bit and stood at Tk412 crore.

The bank had not been able to give cash dividends to its shareholders since 2015. It gave bonus shares to investors. Four years later in 2019, the National Bank had been able to pay a 5% bonus as well as a 5% cash dividend to its investors.

Investors had already come to know such a bad image of the bank. That is why they are not interested in shares of the National Bank. As a result, the bank's share price has fallen below its face value.

Throughout 2017, the bank's share price was between Tk10 and Tk15. In the following years, the share price never crossed face value. On 5 May, the share price fell to Tk7.20.

After the death of the National Bank's chairman, a dispute started between the Sikder family over the control of the bank. Some top officials of the bank also got involved in irregularities. The central bank is now conducting several investigations into the overall irregularities of the bank.

Meanwhile, as the National Bank has not had a full-fledged managing director for a long time, the central bank directed the bank to appoint a managing director by 28 April.

In the light of it, the National Bank appointed acting managing director Shah Syed Abdul Bari as managing director for three months at a meeting of the board of directors on 26 April.

The bank will have to appoint a full-fledged managing director within the next three months.

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

Earlier, ASM Bulbul, additional managing director of the bank, was in charge. But as his term expired, the central bank asked the National Bank to remove him. Later, the chairman of the bank, Monowara Sikder, extended his term, which came into effect from 1 April.

But the central bank on 6 April directed him to refrain from his current duties as the matter was not in accordance with the law. Following the central bank's directive, the bank's board of directors removed ASM Bulbul and appointed deputy managing director Shah Syed Abdul Bari as acting managing director.