Eastern Insurance Company Limited has been found to have violated the law by placing Fixed Deposit Receipts (FDRs) in banks rated below the “A” category, according to an investigation by the Insurance Development and Regulatory Authority (IDRA).
The investigation revealed that the company holds 684 FDRs across 47 banks. Of these, 51 FDRs are placed in five banks rated below the “A” category or lacking good credit quality, which is illegal under the Non-Life Insurance Company Asset Investment and Preservation Regulations, 2019.
According to Section 4(kha)(5) of the regulations, deposits must be kept in scheduled banks in Bangladesh that have an "A" or higher rating from an approved rating agency.
The central bank uses Bangladesh Rating Agency Limited (BDRAL) ratings to assess credit risk, particularly focusing on banks rated "A" category and above. AAA represents the highest credit quality, with minimal risk, while AA ratings indicate strong financial health with slightly more vulnerability. Banks rated A are considered high quality but more sensitive to economic shifts. These ratings determine a bank’s ability to secure funds.
A total of 12 investigation teams were formed last December to look into Eastern Insurance's investments, with reports submitted on December 18. The company was later required to detail its irregularities in a table format, which it provided this year recently.
The report revealed that Eastern Insurance invested Tk 137.50 crore through 684 FDRs across 47 banks. Of these, 667 FDRs were found, while 17 are still being encashed. Significantly, Tk 8.80 crore was invested in 51 FDRs across five banks rated below the “A” category.
The investments include 17 FDRs worth Tk 2.10 crore in Bangladesh Krishi Bank, nine FDRs worth Tk 1.10 crore in BASIC Bank Limited, two FDRs worth Tk 30 lakh in Padma Bank Limited, 22 FDRs worth Tk 5.20 crore in National Bank Limited, and one FDR worth Tk 10 lakh in Rupali Bank Limited.
Surprisingly, Bangladesh Krishi Bank is rated overall as BB-, BASIC Bank as B+, Padma Bank as BBB+, and National Bank and Rupali Bank as A-, meaning these investments violate regulations governing the placement of funds in banks rated below the “A” category.
The company has also breached regulations on investments in government securities. The investigation found that while Eastern Insurance was required to invest Tk 17.70 crore in government securities, it had only invested Tk 2.50 crore at the time.
The company informed that it planned to invest Tk 5 crore in March, Tk 5 crore in April, and Tk 5.20 crore in May this year to meet the regulatory requirements. Although Tk 5 crore was invested in March, the remaining investments have not yet been made.
The investigation report noted that the company was fined Tk 5 lakh for not adhering to the government securities investment regulations. However, instead of paying the fine, the company filed a review with the authorities, which is still ongoing.
When approached regarding the investigation, Chief Executive Officer Hasan Tarek, who recently took up his position, stated he was not in a position to comment at this time.
The investigation also revealed significant irregularities in the company’s land acquisitions. In May 2005, Eastern Insurance purchased 11 kathas of land in Motijheel, Dhaka, through two deeds, with a total deed value of Tk 3.13 crore. However, the reported expenditure was Tk 22.68 crore, resulting in a discrepancy of Tk 19.55 crore between the deed value and the actual spending.
The investigation also found that Eastern Insurance Company Limited had formed a subsidiary, EIC Securities Limited, without obtaining the necessary approval from authorities. The company reported an investment of Tk 28.69 crore in the subsidiary.
For establishing the subsidiary without approval from the Insurance Development and Regulatory Authority (IDRA), Eastern Insurance was fined Tk 50,000 for violating Section 42 of the Insurance Act, 2010.
When contacted, IDRA spokesperson Jahangir Alam stated that necessary actions would be taken after verifying the issues highlighted in the investigation report.
Financial update
Eastern Insurance has released its financial results for the first half of 2024, showing a notable improvement in its financial indicators compared to the same period last year.
The company reported Earnings per Share (EPS) of Tk 1.70 for the January-June 2024 period, up from Tk 1.30 in the corresponding period of 2023.
Additionally, the net operating cash flow per share (NOCFPS) increased significantly to Tk 0.51 for the January-June 2024 period, compared to Tk 0.26 for the same period in 2023. As of June 30, 2024, Eastern Insurance’s net asset value (NAV) per share stood at Tk 52.83, up from Tk 51.13 as of December 31, 2023.
For the April-June 2024 quarter, Eastern Insurance reported an EPS of Tk 1.11, marking a significant rise from Tk 0.59 in the same quarter of the previous year.
