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Published : 29 Oct 2017, 07:47 PM
Bangladesh Bank appointed an observer for the bank last year after finding irregularities in disbursing loans of billions of taka only three years into starting operations, a move halted by the High Court later.
Now the finance ministry says the bank is taking loans with high interest rates from depositors and other banks while it does not have the capacity to repay.
The Farmers Bank has created 'systematic risk' for Bangladesh's entire financial sector in this way, the Bank and Financial Institutions Division or BFID says in a report.
The division submitted the report to the parliamentary standing committee on the finance ministry on Sunday.
The bank's depositors may lose confidence in it for these activities, the report warns.
Mohiuddin Khan Alamgir
The Farmers Bank secured its licence along with eight other banks in June 2013. The awarding of the licences to the banks was allegedly a politically influenced move.
Ruling Awami League MP Alamgir is Chairman of the bank. His wife held the post beforehand.
According to the report on Farmers Bank, it loosened rules of disbursing loans and its internal control system soon after launch in 2013.
The irregularities identified in the report are:
>> Not following guidelines to disburse loans.
>> Giving loans to organisations that actually do not exist.
>> Giving loans to its directors and directors of other banks violating rules.
>> Giving loans against insufficient or faulty guarantees.
>> Giving a borrower more amount than the ceiling.
"The bank does not have the ability to repay its liabilities," the report says.
It says the Farmers Bank is experiencing liquidity crisis for a year and it has deepened to such a level that the bank is failing repeatedly to fulfil cash reserve requirement or CRR at the Bangladesh Bank.
Twenty-eight of the 54 branches of The Farmers Bank are operating on losses.
The total deposit by its customers was Tk 51.25 billion on that day. Other banks deposited Tk 5.35 billion in it and lent it Tk 1.45 billion in call money market.
The bank bought government bills and bonds worth over Tk 10 billion until that day.
The report says the bank is disbursing loans violating a Bangladesh Bank ban on approving new loans and raising the ceiling of loan, pushing its loan-deposit ratio to 88.7 percent. The maximum acceptable ratio is 85 percent.
The bank's penalty interest and fines snowballed to around Tk 185 million in past one year.
Twenty-eight of the 54 branches of the bank are operating on losses, according to the report.
Razzaque said these private banks are 'public organisations' because those operate using the people's money. "That's why the committee discussed the issue."
The Farmers Bank Managing Director AKM Shameem was present at the meeting.
Razzaque said Shameem told the committee that his management was trying to "correct the irregularities by the previous one".
'Irregularities' in NRB Commercial Bank
The report on NRBCB says the bank made minutes of meeting of its board by forging absent directors' signature.
It lent money to an organisation related to Mercantile Bank Chairman AKM Shaheed Reza in breach of the rules.
Bank and Financial Institutions Division is also investigation NRB Commercial Bank for alleged irregularities.
The bank's Managing Director Dewan Mujibur Rahman and other directors were involved in the irregularities, the report says.
According to the report, classified loans of the bank totalled around Tk 193 million in 2016, but rose to over Tk 1.91 billion in 2017. The amount is around 5 percent of its total loans.
Among the new banks, NRBCB is placed second in rates of classified loans. The Farmers Bank tops the list.
In a media release, the Parliament Secretariat said the committee recommended ensuring punishment of the culprits after further investigation into the alleged irregularities in the two banks so that those can regain customers' trust.
Panel chief Razzaque said the committee also discussed recent activities of the Islami Bank Bangladesh Limited.
"It is giving loans aggressively. We have alerted (the bank) about the issue," he added.
