Rupali Bank at high loan default risk with 20 borrowers taking bulk of credit

Rupali Bank has lent as much as nearly half of Tk 107 billion loan to only 20 clients, prompting the central bank to warn that the state-owned bank is at increased risk of default.

According to a Bangladesh Bank report, 42 percent of the bank's loan has been given to these 20 borrowers. Again, five businessmen altogether hold 22 percent of that loan.

The central bank report, on the overall performance of Rupali Bank in 2013, says outstanding loans with the top 20 recipients amounted to Tk 45.077 billion out of the Tk 107.42 billion lent by the bank.

The bank has Tk 23.98 billion unpaid loans with five business groups, which is 22.33 percent of the total loan disbursed.

Bangladesh Bank has cautioned Rupali Bank about these accumulated loans to a handful of clients being defaulted on and instructed it to strengthen its collection operations.

Only Tk 1.04 billion has been collected from these top 20 loan-recipients, both individual and business groups, as of Dec 31, 2013, according to the central bank report.

It says out of Rupali Bank's totals assets of Tk 204.54 billion, Tk 125.56 billion has been marked as risky assets.

Inefficient management and incompetent board of the bank had led to a major portion of the loan being disbursed to a handful of clients, says former Bangladesh Bank governor Salehuddin Ahmed.

"This is a grave error in managing risks. The bank is being held hostage to these organisations that have taken a second loan after defaulting on previous loan," said the former central bank chief.

"A bank's job is to spread risks, not to centralise them. Forty-two percent of loan given to only 20 clients is definitely centralising risks."

Meanwhile, Bangladesh Bank has forwarded a summary of the report to the finance ministry's Bank and Financial Institutions Division.

It says Rupali Bank's financial risk is going up since it is not providing facts on loan disbursement, loan frauds and default loans properly, and because of accounts mismatch and weak corporate governance.

According to a MoU signed between the Bangladesh Bank and Rupali Bank, in 2013 the bank was supposed to collect Tk 1.94 billion from loan defaulters.

But only Tk 765 million was collected last year, which the central bank in its report describes as a 'violation of the MoU's conditions'. It further says that the rate of collection is 'disappointing' and blames lack of efficient and proactive officials in the bank for it.

The report states irregularities in rescheduling loans at three branches in Dhaka, Khulna and Chittagong. It says the branches ignored the central bank's instructions and rescheduled loans of Tk 6.4 billion of 13 clients without receiving proper downpayments.

Citing poor governance, the central bank says Rupali Bank does not have proper monitoring and control mechanism to achieve the commercial and other targets stated in its annual operational plans.

Rupali Bank authorities, however, do not find these issues serious.

"The business operates by giving loans to large organisations, which is normal. The recent practice for banks is to finance SMEs. Before that, all banks invested heavily in a few large organisations," Managing Director M Farid Uddin Ahmed told bdnews24.com.

Citing his previous workplace, the state-owned Janata Bank, he said: "I have seen there that most of the loans have been given to a few large organisations.

"This is not an issue; there will be some risks in business. We have not done any irregularities in disbursing loans, there have been no fraud on the part of Rupali Bank."

Speaking on the issue, Bangladesh Bank Deputy Governor SK Sur Chowdhury told bdnews24.com:"We have introduced the 'Single Borrower Exposure Limit' so that banks' investments do not get concentrated on a few clients."

He, however, asked banks to use more caution as many of them have still not be able to clear accumulated loans.