Tk 1,600 cr of 4 govt banks stuck in NBFIs

Less chance to get back

Staff Correspondent: Over Tk 1,600 crore of four state-owned commercial banks are stuck with some weak non-bank financial institutions. According to the 2022 financial report of state-owned Sonali, Rupali, Agrani and Janata Bank, out of which Tk 1,392 crore have been kept as fixed deposits and the rest has been given as loans through the call money market.
The non-banking financial institutions are Bangladesh Industrial Finance Company (BIFC), FAS Finance, First Finance, International Leasing and Financial Services Limited (ILFSL), People’s Leasing and Financial Services Limited, Premier Leasing, Prime Finance, First Finance and Union Capital. With the deposits of state-owned banks being held by weak financial institutions, questions have been raised as to whether the banks have taken proper precautions before investing.
In addition, the state-owned banks have kept about Tk 1,200 crore in some banks that are in financial crisis. State-owned banks claim that the reason for their investment is attractive interest rates. But analysts say the banks have placed the deposits based on wrong analysis or it has been done to get unethical benefits. Even ICB Islamic Bank, which has been loss-making for at least a decade, and Padma Bank (formerly known as Farmers Bank), which has been mired in massive irregularities and loan scandals, have managed to attract deposits from these four banks. AB Mirza Azizul Islam, former caretaker government’s financial adviser, said, “I don’t know why banks kept their money in weak banks or non-bank financial institutions.” Maybe there is political pressure. Banks should keep money in banks or financial institutions after properly analyzing their situation.
Agrani Bank has kept Tk 409 crore as Fixed Deposit Receipt (FDR) with BIFC, FAS Finance, First Finance, ILFSL, People’s Leasing, Premier Leasing, Prime Finance, First Finance and Union Capital. Agrani Bank has blocked FDR of Tk 200 crore in Padma Bank and Tk 690 lakh in ICB Islamic Bank. At the same time, the bank has given a loan of Tk 51 crore to FAS Finance, Prime Finance, BIFC, First Finance, People’s Leasing and Premier Leasing through call money market. Also, they have invested Tk 100 crore in Padma Bank’s subordinated bonds.
Agrani Bank said in its financial report that it is trying to recover the money deposited with NBFIs. But, the institutions are not able to repay the FDR even after the maturity date. Agrani Bank Chairman Zayed Bakhat said that they are getting interest from most of the FDR kept in various banks. But recently some non-bank financial institutions are unable to pay due to their own problems. He said the investment in Padma Bank was due to a special situation and as per the government decision all state-owned banks had to invest.
However, state-owned banks regularly receive interest from investments in subordinated bonds of banks and non-bank financial institutions. The former research director of Bangladesh Institute of Development Studies said that before the current crisis, non-bank financial institutions were doing well. Their business was also good. He said, many people are facing problems by investing in financial institutions, this bad image has affected the whole sector as some institutions have gone bad. As a result, some of the best non-bank financial institutions have also fallen into crisis. As a result, FDRs of many banks are stuck in these institutions. According to Bangladesh Bank data, 14 out of 35 non-bank financial institutions in Bangladesh were in the red zone last year, compared to 12 in 2021.
According to Central Bank data, defaulted loans of NBFI sector increased to Tk 19,951 crore in June, which is 27.65 percent of total loans. A former top official of a state-owned bank said that state-owned banks generally do not want to invest or fund a weak institution. But, sometimes it has to be done due to influence of managers or political pressure. He said that sometimes top officials also decide to keep money in weak institutions in return for benefits.
Hence, strict investigation and accountability need to be ensured here. He commented that the root cause of the plight of the NBFI sector is major irregularities. An inspection by the central bank in 2020 revealed widespread irregularities and scams in a dozen NBFIs including People’s Leasing, ILFSL, Premier Leasing, Uttara Finance and First Finance. Rupali Bank has invested Tk 566 crore by opening FDRs in some NBFIs. Besides, Rupali Bank has an FDR of Tk 110 crore in Padma Bank and Tk 19.89 crore in ICB Islami Bank.
Rupali Bank Chief Financial Officer Harunur Rashid said that when Rupali Bank kept money in NBFIs, their financial condition was good, capital was strong and non-performing loans were low. But, it was hard to predict when they would fall into such a difficult situation.
He said it was unexpected. Now we are in regular contact with NBFIs. NBFIs can talk to the central bank to resolve the issue. Sonali Bank has kept Tk 240 crore in Padma Bank, Tk 14.5 crore in ICB Islami Bank and Tk 164 crore in various non-banking financial institutions. Janata Bank has invested Tk 190 crore in Padma Bank, Tk 14 crore in ICB Islamic Bank and Tk 253 crore in various non-banking financial institutions as fixed deposits. When we tried to contact Janata Bank Managing Director Abdul Jabbar and Sonali Bank Managing Director Afzal Karim, they did not pick up the phone. Hasina Jannat, head of treasury of First Finance, said that mainly due to liquidity crisis, they are not able to pay the money.
He said, we are giving preference to individual depositors in paying deposits. We are planning to return the money to the state-owned banks if it is possible to collect large debts. He said that First Finance owes a lot to a non-listed company and is trying to recover that money.
Acting Managing Director of ILFSL Moshiur Rahman said, we have about Tk 2 thousand crores of debt with various banks and about Tk 2 thousand crores of debt with other NBFIs and corporate institutions. He said, due to liquidity crisis, we are unable to pay the amount. He said the company is restructuring the equity base and trying to reach a solution in the coming months.
Treasury officer of ICB Islami Bank Md. Delwar said most of the state-run banks were opened by FDR when it was operating under the name Oriental Bank. When the name of ICB Islamic Bank was changed to ICB in 2008, the bank’s liabilities were over Tk 2,400 crore. Now it has reduced to Tk 400 crores. Md. Delwar added, “We are gradually returning the money to our depositors and interest is also being paid.”