Four state banks, Investment Corporation of Bangladesh to buy shares of troubled Farmers Bank

Four state banks and the Investment Corporation of Bangladesh or ICB are buying Farmers Bank in a desperate effort to save the troubled bank hit by loan scams.

Bangladesh Bank cleared the way for the ICB and the four government banks—Sonali, Janata, Agrani and Rupali—relieving them of barriers under the Banking Companies Act.    

The central bank issued a notice on Tuesday, citing an order from Governor Fazle Kabir.

A central bank official said the four state-owned banks and the ICB will buy Farmers Bank shares for Tk 7.15 billion.

The four banks will pay Tk 1.65 billion each and the ICB will account for Tk 550 million of the fund.

The money will be used to pay depositors of the troubled bank.

Its authorised capital is Tk 15 billion and paid-up capital Tk 4.01 billion. The bank is trying to increase its paid-up capital to Tk 15 billion.

According to a government report on Farmers Bank, it loosened rules of disbursing loans and its internal control system soon after it was established by ruling Awami League MP Muhiuddin Khan Alamgir in 2013.

The irregularities identified in the report included not following guidelines to disburse loans, giving loans to organisations that actually do not exist and to its directors and directors of other banks violating rules, giving loans against insufficient or faulty guarantees and giving a borrower more amount than the ceiling.

By the end of September last year, the bank had Tk 3.78 billion in defaulted loan, which was 7.45 percent of the total credits disbursed - the highest ratio of total loans to bad debt in any of the new banks.

The government report said the Farmers Bank situation put Bangladesh’s entire financial sector at risk.

Alamgir resigned from the bank as its chairman following pressure by the end of last year.

Mahabubul Haque Chisty alias Babul Chisty, a former chairman of the bank’s audit committee, has been arrested by the Anti-Corruption Commission over a loan scam involving the bank.

Finance Minister AMA Muhith has blamed the founders of the bank for its troubles.

The clearance for purchase of the bank’s shares came amid objections to the move.

MPs questioned funding the bank with public money, but the finance minister argued that if the bank collapsed, it would affect the entire economy and so it should be avoided.