4 struggling banks get Tk945cr bailout from stronger ones

Four private commercial banks, weakened by loan fraud and various irregularities, have received financial assistance in the form of loans amounting to Tk945 crore from stronger banks. 

The banks receiving financial support are First Security Islami Bank, Social Islami Bank, Global Islami Bank and National Bank.

Five strong banks with excess liquidity have provided these loans under the guarantee or assurance of the central bank. The banks that have extended support are City Bank, Eastern Bank, Mutual Trust Bank, Dutch-Bangla Bank and Bengal Commercial Bank.

Bangladesh Bank Executive Director and Spokesperson Husne Ara Shikha confirmed the information yesterday.

The guarantee from the Bangladesh Bank means that if, for any reason, a bank fails to repay the loan, the central bank will cover the amount. For now, instead of directly providing funds, the central bank is facilitating loans from other banks. 

In other words, money will move from one bank to another within the market, which will prevent additional inflation pressure, central bank officials said.

The spokesperson said against the central bank's guarantee, the five banks have provided financial assistance in the form of loans to four banks. 

First Security Islami Bank has received Tk300 crore. Of the amount, City Bank has mobilised Tk200 crore, Dutch-Bangla Bank has lent Tk50 crore and Mutual Trust Bank also lent Tk50 crore.

Social Islami Bank has also received Tk350 crore. Of the amount, City Bank has provided Tk300 crore while Mutual Trust Bank has lent Tk50 crore to the bank.

Eastern Bank has provided Tk25 crore to Global Islami Bank.

National Bank has received financial assistance of Tk270 crore. Of the figure, City Bank has lent Tk200 crore, Bengal Commercial Bank has provided Tk20 crore and Mutual Trust Bank has lent Tk50 crore to the bank. 

Among the lending banks, City Bank has extended the largest loan amounting to Tk700 crore.

Earlier, last week, Bangladesh Bank Governor Ahsan H Mansur held a meeting with the managing directors and representatives of 10 strong banks to discuss providing loans to the weaker banks against the guarantee of the central bank. 

The 10 banks are state-owned Sonali Bank, and private sector's Bank Asia, BRAC, City, Dhaka, Dutch-Bangla, Eastern, Mutual Trust, Pubali and Shahjalal Islami banks.

After the meeting, it was announced that if the strong banks request the repayment of the loans provided to the weaker banks, the Bangladesh Bank will return the amount within three days. No bank will be allowed to charge any fees for providing loans. 

The Bangladesh Bank will determine how much liquidity support will be given to each bank. Additionally, the interest rate on the loans will be set based on the agreement between the two banks. For these reasons, the 10 banks agreed to extend loans to the weaker banks.

Five banks have already signed agreements with the Bangladesh Bank to receive liquidity support. These banks are National, Social Islami, First Security Islami, Union, and Global Islami Bank. Two more banks are awaiting to finalise their agreements.

The seven struggling banks have sought approximately Tk29,000 crore in liquidity support to recover from their crises. Among them, Islami Bank has requested Tk5,000 crore, First Security Islami Bank has asked for Tk7,900 crore, Social Islami Bank has sought Tk2,000 crore, Union Bank has requested Tk1,500 crore, Global Islami Bank has asked for Tk3,500 crore, National Bank has requested Tk5,000 crore and Exim Bank has sought Tk4,000 crore in assistance.

During the Awami League government's tenure, S Alam Group used to control eight banks. These include Islami Bank Bangladesh, First Security Islami Bank, Al-Arafah Islami Bank, Social Islami Bank, Global Islami Bank and Union Bank. Additionally, the group also had control over Bangladesh Commerce Bank and National Bank. These eight banks are facing liquidity crises. 

However, the situation of six of these banks deteriorated to the point where many of their branches lacked sufficient cash to conduct transactions. Branch officials were under pressure from depositors.

Following the student-led uprising that resulted in the fall of the Sheikh Hasina-led government on 5 August, the boards of 11 banks were dissolved and restructured. Of them, eight were under S Alam's control. The other three banks whose boards were restructured are IFIC, UCB, and Exim Bank. 

Among these, former Prime Minister Sheikh Hasina's adviser on private industry and investment Salman F Rahman held control of IFIC Bank, while former land minister Saifuzzaman Chowdhury and his family controlled United Commercial Bank.

Besides, Exim Bank was under the control of Nazrul Islam Majumder, former chairman of the Bangladesh Association of Banks, which represents the entrepreneurs and directors of private banks.