Nafeez Sarafat steps down as Padma Bank chair on health ground

Chowdhury Nafeez Sarafat has resigned as the chairman of Padma Bank (formerly Farmers Bank), citing health reasons after more than six years in the position.

The Bangladesh Bank has accepted the resignation, and Md Afzal Karim, managing director of Sonali Bank, will assume the role of acting chairman of Padma Bank until a new appointment.

"Nafeez Sarafat recently returned from the United States following surgery and will need several months to fully recover," Tarek Reaz Khan, managing director of Padma Bank, told The Business Standard.

"He decided to resign to ensure the bank's operations continue smoothly," added Tarek.

Sarafat joined the Padma Bank, the erstwhile Farmers Bank, in January 2018 after its former chairman Muhiuddin Khan Alamgir resigned from the board for his alleged involvement in financial scams. The bank was nearing collapse at the time due to massive lending anomalies since its inception in 2013.

The board of the bank took the decision to appoint him in line with the recommendation of the central bank, The Daily Star reporter on 15 January 2018 quoting Sarafat.

"I will serve as chairman of the bank as an institutional representative of 12 organisations. The board decision will effect after the central bank approval", he also said.

Soon after he joined, the state-owned Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank and Investment Corporation of Bangladesh came up with a Tk715 crore bailout for the erstwhile Farmers Bank.

The state-owned banks also invested an additional around Tk1,000 crore in the bank in other forms, such as subordinate bonds and fixed deposits.

However, the total investment of public money could not stop the capital erosion of the bank, as it could not recover money from defaulters.

In July 2021, Md Ehsan Khasru, the then-managing director of Padma Bank, submitted a merger or acquisition proposal to the finance ministry due to huge defaulted loans, an inability to return deposits, and large losses. But the merger never happened.

After proposing the merger, Padma Bank said in a press release in September 2021 that it had entered into an agreement with US-based investment bank DelMorgan and Company. 

It said DelMorgan would act as the lead arranger of a $700 million investment, including $350 million in equity investments and the rest of $350 million as a credit facility. But the money did not come, according to bank insiders.

To secure funds from foreign sources, Padma Bank reportedly withheld information about accumulated losses exceeding Tk900 crore, and the central bank allegedly consented to establish a separate account without disclosing this information, as per media reports. 

Also, the BB eased regulations for Padma Bank, particularly concerning the maintenance of the Cash Reserve Ratio and Statutory Liquidity Ratio.

In February 2023, the Investment Corporation of Bangladesh (ICB) decided to withdraw investments from Padma Bank after not getting any return on the investment in five years. The state-owned investment corporation is now looking for strategic investors from home and abroad to sell its shares in the crisis-ridden lender.

"We made an equity investment so that we could get a share of the bank's profits. But we did not get any return on the investment in Padma Bank, which is why the board of directors of the ICB has decided to sell the shares [in the bank] and withdraw the investment," Md Abul Hossain, managing director of the ICB, told The Business Standard at the time.

In October of the previous year, the parliamentary standing committee on the Ministry of Environment, Forests, and Climate Change directed relevant officials to take necessary actions to recover Tk536 crore, which had been parked as FDR in 2015. During that period, Saber Hossain Chowdhury served as the chairman of the parliamentary watchdog and currently holds the position of Minister for the Ministry of Environment, Forests, and Climate Change. The outstanding amount, now totaling over Tk827 crore, includes a 9% interest rate, as stated by a senior official of the ministry.

Despite failing to repay the FDR, Farmers Bank reportedly obtained an extension of eight additional years from the Ministry of Environment in December 2022 to settle the debt.

As of the conclusion of 2023, Padma Bank's outstanding loans amounted to Tk5,740 crore, of which Tk3,550 crore were default loans, indicating a limited capacity for the bank to reimburse depositors. Also, the bank recorded a capital shortfall of Tk607 crore at the end of September 2023.