The BB’s leniency is responsible for the difficult situation of the banking sector

Banking rules and regulations provide for a single borrower exposure limit to ensure that the bank’s assets are not tied to the ebbs and flows of a customer’s business. However, the banking regulator itself has routinely flouted this rule over the past 16 years.

Bangladesh Bank always allowed overdraft with special compensation, which put state-owned banks in a difficult situation.

According to the act, banks cannot lend more than 25 percent of the paid-in capital to one person.

However, in a surprising move, some lenders have provided more than 500 percent in the form of paid-up capital loans.

For example, state-owned Janata Bank’s credit exposure to Beximco Group was Tk 25,000 crore, which is about 950 percent of the lenders’ paid-up capital.

As many as Tk 19,000 crore of Beximco loans have become defaulted.

The sprawling conglomerate took out a huge number of loans because the central bank allowed Janata to exceed its limit.

In August last year, the banking regulator issued a no-objection certificate for granting loans of Tk 479 crore to Beximco, even though the amount violated Janata’s single borrower exposure limit.

Despite objections from the Department of External Oversight, the wing of the central bank responsible for monitoring and regulating banks, then-Governor Abdur Rouf Talukder granted Beximco an exemption.

Not only in the case of Beximco, BB allowed state-owned banks to exceed exposure limit for so many conglomerates including S Alam Group, Orion Group and Bashundhara Group.

The controversial S Alam Group has taken a huge amount of loans from Islami Bank. The Chattogram-based conglomerate also dominated the sharia lender’s board.

S Alam also acquired Tk 10,449.45 crore from Janata, which was 451 percent of the state-owned lender’s paid-up capital.

Three state-owned banks – Janata, Agrani and Rupali – have approved loans of Tk 10,579 crore for Orion Group’s power plants, well beyond their limits thanks to policy relaxation by BB.

The three lenders were able to approve such a large amount for Orion as the central bank relaxed Art. 26 kha(1) of the Banking Companies Act, 1991 which states that loans granted by a bank to a single borrower shall not exceed the amount of 25 per cent of the bank’s capital.

BB has relaxed rules for coal-fired energy companies for the next five years. It issued no-objection certificates for loans for the Orion power plant.

However, the loans were later canceled at the request of the business group.

Orion has been approved for the syndicated loan based on the financial credibility of the coal project and without any undue influence, said Salman Obaidul Karim, managing director of the company.

The Bashundhara Group, one of the country’s largest conglomerates, has benefited from loans worth Tk 2,726 crore in 2022 from five state-owned banks – Sonali, Rupali, Janata, Agrani and Bangladesh Development Bank – with special focus on BB in connection with the gold refinery project.

All except Bangladesh Development Bank exceeded the single borrower exposure limit.

The defrauded Janata Bank, which is in serious trouble, has approved the highest amount of Tk 883 crore for the project.

In this case, Bashundhara Group’s media advisor, Mohammad Abu Tayeb, told The Daily Star that the infrastructure of the gold refinery project is already ready and they are waiting for the delivery of machines.

Banks granted loans for the project after proper assessment and inspection.

In some cases, the banking regulator has allowed state-owned lenders to exceed exposure limits due to political pressure or pressure from influential circles, BB officials say.

However, BB spokesman Husne Ara Shikha recently told The Daily Star that the central bank has granted some customers exemption from the single borrower exposure limit on grounds of special purpose and special interest.

“These types of waivers are granted for many large projects,” she added.

The Deshbandhu Group recently asked the BB to relax the single borrower’s exposure limit on imports of essential goods ahead of Ramadan.

Industry insiders say that state-owned banks are being held hostage by several customers due to frequent violation of exposure limits.

A lender’s risk increases when a single customer receives a large portion of the loans, sometimes even more than the customer’s equity, they added.

According to central bank documents, in June last year, Janata had the highest number of large borrowers (67) and the highest percentage of large borrowers that exceeded the single borrower’s exposure limit of 25 percent of capital.

Sonali had 21 large borrowers and 13 exceeded the exposure limit of a single borrower.

Agrani had 55 large borrowers and 20 of them exceeded the limit.

As of June 30 last year, Rupali had 35 large borrowers and the exposure of 10 of them exceeded the ceiling set for a single borrower.

“Since the central bank itself allowed banks to exceed the exposure limit of a single borrower, there was no need to set a limit,” said Mustafa K Mujeri, former chief economist at BB.

Such dismissals are illegal for some clients.

The current difficult situation in the banking sector is a reflection of such deviations from rules and regulations, said Mujeri, also executive director of the Institute for Inclusive Finance and Development.

“Laws and rules are made to be followed, but what is the logic of having laws and rules when they are not followed? The central bank cannot deny responsibility for the unstable situation of most banks,” he added.

At the end of September, six state-owned commercial banks – Agrani, Janata, Rupali, Sonali, Bangladesh Development Bank and BASIC Bank – had a total outstanding loans of Tk 126,111.5 crore, accounting for 40.35 percent of their disbursed loans.

Of this amount, Janata accounted for Tk 60,489 crore, Agrani Tk 26,891 crore, Sonali Tk 16,623 crore and Rupali Tk 12,738 crore.

The central bank should never allow the exposure limit to be exceeded as it is not good for good governance, said Anis A Khan, former chairman of the Association of Bangladesh Bankers (ABB).

Some large borrowers who are currently borrowing beyond their means are unable to repay the interest on their loans.

The single borrower exposure limit can only be relaxed for imports of essential goods during Ramadan and for the energy sector as energy is very important for the country, said Khan, also a former chief executive of Mutual Trust Bank.