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Fareast Finance and Investment Limited (FFIL) displayed “irregularities” in sanctioning loans approved by its board and management, according to an inspection by Bangladesh Bank.
Breaching banking rules and using fake documents, the loans had been given to its subsidiary company and some other companies due to excessively cosy relations.
A team of the central bank recently inspected the non-banking financial institution (NBFI) and unearthed the gross irregularities in its audit reports, expenditures and non-performing loan-write off.
Former FFIL Chairman MA Khaleque, former Managing Director Shantanu Shaha, former Deputy Managing Director Mohammed Hafizour Rahman and former Independent Director Md Rafiqul Islam have largely been involved in the financial fraud, said the BB findings.
In December 2014, Khaleque received a car worth Tk 66 lakh gifted by the then board as a token of love for a Tk 1. The car was bought by taking loans from International Leasing. This is a violation of the banking rules as an NBFI is not allowed to purchase a car not more than Tk 50 lakh.
In 2010, Fareast Stocks and Bonds, a subsidiary of FFIL, received Tk 117 crore from its parent company FFIL beyond the single-borrower exposure limit set by the BB, according to the findings.
No NBFI is allowed to borrow more than 30 per cent of its paid-up capital and reserve, according to the banking rules.
But there is a scope to extend the loan ceiling subject to the approval of the central bank. But in this case, FFIL management and board violated the rules.
In 2011, the total outstanding loans of Fareast Stocks and Bonds stood at more than Tk 275 crore to FFIL. The figure is 590 per cent higher than its paid-up capital plus reserve valued at Tk 47 crore, revealed the BB.
Though FFIL got no money back from its subsidiary company, it paid back Tk 130 crore to its depositors over the last five years, worsening its financial crisis.
It provided Tk 5 crore in loans to Westmond Power Bangladesh and Tk 2 crore to SKM Trading Center without proper documents, according to the report.
FFIL also written off loan performing loans to several companies, which were also provided loans inappropriately and bypassing banking rules, said the BB report. The companies are SKM Trading Center ( Tk 4 crore), Limousine Club (Tk 10 lakh), Rotomax Industries ( Tk 25 lakh), Karim Petroleum Ltd ( Tk 60 lakh), Meherun Filling Station ( Tk 1 crore), Prime Plus Diversified Jutex ( Tk 1.5 crore), and Pick and Drop ( over Tk 69 lakh).
Despite being an independent director of FFIL, Islam was also the director of Fareast Stocks and Bonds, which is also a violation of the securities rules. He pocketed about Tk 1.5 lakh in taking part in 18 board meetings of both the companies during his tenure, the report said.
Abusing his position, Hafizour Rahman helped his wife Nazmun Nahar open two BO accounts in the merchant bank and transacted shares worth Tk 12 crore. The BB inspection found that the accounts had no balance.
FFIL led by Khaleque and Shantanu relieved Rahman of his position without asking any explanation about the maneuvering.
The top executives of the NBFI invested a large number of funds in fixed deposit receipt or FDR to different banks and financial institutions for their financial gains, the report said.
The company inflated its interest income by Tk 8.24 crore to Tk 88 crore in its 2018 financial report. It also presented fake operational costs and fixed assets in the report.
It also concealed the original costs of making financial reports, operational costs and some other transactions.
The management also embezzled about Tk 40 lakh for making billboards by presenting false vouchers and documents, said the report.
“The BSEC recently recast the board. Along with BSEC, Bangladesh Bank is also auditing the company. When the audit will reveal everything will be fixed in the next 2 to 3 months,” Muhammad Ali Zaryab, the current MD of FFIL, told The Business Post.
FFIL Independent Director Sheikh Nazmun Hoque Saikot said, “The then board led by Khaleque and Shantanu had committed irregularities from the very beginning, putting people’s deposits at risk. They disappeared many documents. Yet, the present board is trying to find out the irregularities, if any.”
Former BB governor Salehuddin Ahmed said, “Bangladesh Bank should closely monitor the weak NBFIs. Once it takes the incident lightly, the Fareast Finance’s depositors will be in trouble.”
“The tough action against those involved in the fraud is required so that no financial institutions like Fareast Finance dare to commit financial crimes in future,” he said.
To help the financial institution get back on the rails, he suggested that it can be merged with another financially sound institution.
In March this year, Bangladesh Securities and Exchange Commission (BSEC) restructured the board of directors to make the NBFI financially sound and appointed a special auditor to review its financial statements.
In March 2020, the Anti-Corruption Commission imposed a travel ban on Khaleque who held key posts in several companies, including Prime Bank, Fareast Islami Life Insurance, Prime Islami Insurance, and Primeasia University.
In 2013, Fareast Finance and Investment got IPO approval to raise Tk 45 crore.
The stock exchanges categorised the company as a non-performing company as it failed to pay any dividend to its shareholders over the last five years.
