• JAJ Bhuiyan and Jakia groups have been irregular in loan repayment since 2014
• Agrani Bank approved Tk80cr in loans to the two groups under incentive package
• This is about 9% of total stimulus loans disbursed by the bank
• The two business groups are owned by the same family
• Agrani's total loans to the groups stood at nearly Tk1,600cr as of December 2019
Business groups JAJ Bhuiyan and Jakia have a long track record of irregular repayments and loan irregularities, but paying little regard to this critical issue state-owned Agrani Bank has provided them with a considerably large amount of stimulus loan.
These two groups of industries – run under the same ownership – have managed to take out Tk80 crore in stimulus loans, which is nearly 9% of total stimulus disbursed by Agrani under the Tk30,000 crore incentive package for large industries and the service sector.
The past records of loan irregularities of the two groups have given rise to questions whether the stimulus package – announced to absorb the economic shock from the coronavirus pandemic – has reached the right hands.
Nonetheless, the approval of the stimulus loans is not the first manifestation of Agrani Bank's special liking for JAJ Bhuiyan and Jakia groups.
The lender even violated its single borrower exposure limit and ignored objections raised by the observer appointed by the Bangladesh Bank in its board and some directors while sanctioning loans to these business groups.
It loaned Tk1,600 crore to these two groups as of December 2019. This figure is equivalent to 34% of the bank's capital, while the Bank Company Act limits a bank's single borrower exposure to a maximum 25% of its capital.
The two business groups are considered a single borrower as they are operated under the same ownership.
As the bank has already provided loans to these two groups of industries exceeding its single borrower exposure limit, there is no scope for providing further loans to them, said an observation report of the Bangladesh Bank.
The report observed that JAJ Bhuiyan and Jakia groups have loan dues, inadequate collateral and a lack of assessment of a client's capacity to get a stimulus loan.
The groups have been irregular in loan repayment since 2014. They also took the rescheduling facility against default loans several times but did not continue installment payment.
Some of the bank's directors also raised objections against loan proposals of the two groups under the stimulus package.
In spite of having such bad records, the bank granted incentive loans under special consideration, said the central bank report.
Quoting several directors, the report said granting financial incentive without proper assessment of a client's necessity of working capital will deprive other borrowers.
When contacted, Mohammad Shams-Ul Islam, managing director of Agrani Bank, admitted that the business groups have been defaulters for several years due to business failure.
But, their business recovered and performed well in the past year, considering which the bank has provided them with stimulus loans, he added.
About the violation of the single borrower exposure limit, Shams-Ul Islam said their exposure exceeded the limit due to non-payment.
Loaning in violation of rules
Agrani Bank granted a stimulus loan of Tk50 crore to Jakia Cotton.
The bank's total loans to the borrower stood at Tk893 crore as of June this year, which is 19.36% of the bank's December 2019 base capital. The single borrower exposure limit in the case of funded loans is 10% of the capital.
With the approval of the new loan, the total figure climbs to Tk943 crore or 20.45% of the bank's capital.
Even though the bank approved loans violating the single borrower exposure limit, it did not include the condition of taking consent from the central bank, the observation report said.
Meanwhile, the bank approved a loan of Tk30 crore against JAJ Bhuiyan Group under the stimulus package.
Agrani Bank's total funded loans to the group stood at Tk693 crore in July this year, which was 15% of the bank's December 2019 base capital.
The newly approved loan takes the accumulated total to Tk723 crore or 15.68% of the bank's capital.
The bank earlier provided a short-term working capital of Tk102 crore to Jakia and another Tk339 crore to JAJ Bhuiyan.
The borrowers failed to continue repayment of the working capital loans and transformed them into long-term loans by taking the rescheduling facility. The bank did not take this loan history in its consideration while approving the stimulus loans, said the central bank's report.
Moreover, there was already inadequate collateral against the existing loans to the two groups and the borrowers did not propose any security while applying for the fresh loans.
Meanwhile, Jakia Cotton rescheduled its loan thrice and JAJ Bhuiyan for four times. And their current repayment behaviour reflects that they do not have the capacity to pay the installment of new loans, said the report.
Agrani Bank approved loans considering Jakia and JAJ Bhuiyan separate business groups, but, in reality, both of them are owned by the same family.
Mohammad Fayazur Rahman Bhuiyan and his wife Moriom Akter are the owners of JAJ Bhuiyan Group, while Johirul Haque Bhuiyan and Habibur Rahman Bhuiyan are the owners of Jakia Group.
The Bangladesh Bank investigation found that Johirul Haque Bhuiyan is the brother of Moriom Akter. This means the two groups have economic interdependence, according to the investigation.
Bad track record of borrowers
An investigation conducted by the Bangladesh Bank in January last year on JAJ Bhuiyan and Jakia groups found that even though there was no regular payment against loan accounts of the groups, Agrani Bank did not classify the loan accounts.
The investigation report observed that the borrowers did not appear to be willing to repay loans hence all their loan accounts are classifiable in terms of qualitative judgment.
The bank, in rescheduling the two groups' proposal for fresh loans, claimed that the reason for failure in repayment of the borrower was business fallout and recession in 2016-17. However, it did not clarify what kind of fallout or recession it was talking about.
The borrowers also did not mention anything in their loan proposals stating what kind of development has happened in their businesses that would enable them to pay installments of loans after rescheduling, said the investigation report.
What is more, the borrowers had defaulted loans with other banks when they applied to Agrani Bank for fresh loans.
The report marked the loans to the business groups as "highly risky" due to carelessness and a lack of assessment on part of the bank in approving loans and unwillingness to repay loans on part of the clients.