While under the control of S Alam Group, huge sums of money were borrowed from Bangladesh Commerce Bank Limited (BCBL). Most of which never came back. As a result, the financial institution fell into a liquidity crisis.
Apart from the board of directors of the institution, the officials and employees appointed by S Alam Group are involved as the reason for the bank’s financial distress. Apart from this, after the formation of the interim government, before the reorganization of the board of Bangladesh Commerce Bank, the then board hastily issued an order to promote 319 officials. These officials are directly involved in the bank’s loan irregularities. Their promotion has been recommended for cancellation.
At the same time, it has been suggested that a functional audit should be carried out on the recruitment and promotion of the company under the control of S Alam Group. Such an opinion has come from the observer regarding the memorandum of the 393rd meeting of the Board of Directors of Bangladesh Commerce Bank.
Incidentally, Bangladesh Bank has recently appointed observers in financial institutions to restore order in banks and take care of financial conditions. The Central Bank has reorganized the Board of Directors and its committees of Bangladesh Commerce Bank on September 3 due to various irregularities including financial scandals.
According to Central Bank sources, two customers of Gulshan Branch of Commerce Bank, Smile Apparels Limited and Smile Outfit Limited, have approved the renewal proposal of Tk 39.50 crore LC limit and Tk 3.90 crore OD limit in violation of regulations. A recommendation has also been made by the observer to monitor the matter.
It also said that by 2024, the bank has a non-performing loan rate of 15 percent and a commitment to collect cash of Tk 200 crore against defaults. But last June the rate of defaulted loans stood at 56 percent and cash collection from defaulters was only Tk 21.93 crore. Which is an expression of extreme weakness of the bank’s management. In such a situation, the bank will not be able to fulfill the conditions of settlement with Bangladesh Bank.
Till June 30, the amount of deposits in the bank was Tk 4,517 crores. As of December 31, 2023, deposits were Tk 4,691 crore. At the same time, the rate of defaulted loans is gradually increasing. Apart from this, the bank’s large loan amount is Tk 957.88 crore, which is 40.28 percent of total loans and advances (Tk 2,378 crore). As a result, the bank’s credit concentration risk is being observed - noted in the coordinator’s opinion.
Apart from this, the bank defaulted on Tk 640.61 crore in 2023. Against which the cash collection is only Tk 81 crores. At the same time, the management authorities of the bank could not take any effective action. As a result, there was no improvement in defaulted loans. On the other hand, the company defaulted again due to non-payment of loan rescheduling installments. As a result, there has been a negative impact on the bank’s main financial indicators including liquidity and capital.
In the recommendation sent to the central bank, the coordinator also mentioned that the bank has incurred a loss of Tk 117.89 crore till June 30. Since then, the bank is failing to conduct normal operations as the current account is negative. Considering the liquidity risk of the bank, financial assistance has already been given from Bangladesh Bank. However, the institution is failing to maintain the required CSR and SLR as per the terms of the repo facility accepted from Bangladesh Bank. It is feared that the bank may fail to repay the loan amount on time if another financial assistance not gain.
The net loss of Bangladesh Commerce Bank in 2021, 2022 and 2023 was Tk 156.52 crore, Tk 200.88 crore and Tk 252.54 crore respectively. The net loss in the first half of 2024 is Tk 117.89 crore. Analysis of the bank’s profit and loss account shows that, after the interest expense, the majority of the bank’s money is spent on salaries and depreciation expenses. According to the terms of settlement with Bangladesh Bank, the management authority has not taken any effective steps to reduce the cost and increase the income of the bank. However, evidence has been found that money received as deposits at various times was transferred to various banks under the control of S Alam Group in the name of short-term investments. In this case, there is no justification for seeking liquidity assistance from Bangladesh Bank without taking visible and effective steps to determine the responsibility of the officials involved in the financial distress of the bank, taking necessary administrative measures and appointing new qualified management authorities - feels the coordinator appointed in the financial institution.
In terms of what to do, the coordinator said, Commerce Bank authorities should emphasize on strengthening liquidity management by bringing back the money kept in other banks and financial institutions, developing banker and customer relations, strengthening the debt collection department and ensuring corporate governance. In such a context, the board of directors and management authorities of the bank must take effective steps to prevent the deterioration of the financial index of the bank and to fulfill the terms of agreement with the central bank.
The coordinator’s opinion on the promotion of executives/officers of the bank mentions that on March 19 this year, 342 executives/officers have been promoted to various posts of the bank. Later, on August 18 and 25, a total of 319 (118 and 201) officers were promoted to various posts. The hasty promotions in the last phase (August 18 and 25) call the whole thing into question. In view of the weak management structure and fragile financial situation, the board has been advised to postpone this office order of promotion. Apart from this, since the S Alam Group took control of the bank, there has been widespread corruption in the appointment of officers and employees. Such complaints have been submitted to Bangladesh Bank at various times. Therefore, in order to ensure the proper management of human resources in the bank, it is necessary to complete a functional audit on the recruitment and promotion of the human resources of the organization after taking control of S Alam Group. The matter has been advised to the Council for urgent consideration.
Appointment of Observer
Failure to maintain statutory cash deposits (CRR), liquidity crunch, excessive non-performing loans including lending in the name of credit institutions in violation of single customer credit limits, lack of safety reserves and capital crunch in banks, have been appointed monitors and coordinators to restore discipline and financial condition.
Officials of the rank of director and executive director of Bangladesh Bank are performing this duty. Currently there are 61 banks in the country. Of these, one-fourth of the banks are now running with observers and coordinators.
Work of observer
There is no central bank notification regarding the appointment of observers and coordinators or their working methods. Apart from this, there is no specific guidance on what their powers are. An observer will attend the board meeting of the bank and observe everything and report their activities and various information to Bangladesh Bank. Bangladesh Bank will take decision in the light of that information and advice if necessary.
