State-run Janata Bank Limited has suspended the disbursement of new loans for sine die as the lender faced a severe liquidity crisis in recent months.
Every day, the bank is borrowing over Tk 6,000 crore through repo and interbank repo to meet their shortfall.
It borrowed Tk 6,802 crore from the central bank and interbank call money market on June 8.
The state-run lender at its 767th Board of Directors meeting on May 16 decided to suspend the new loan disbursement until the liquidity situation normalises and improves, said the meeting minutes.
The minutes also said that no Letter of Credit (LC) — except the government ones — can be opened without a 100 per cent cash margin.
This Business Post correspondent tried to reach the bank’s Managing Director and CEO Md Abdul Jabbar over the phone multiple times for comment but he did not receive the calls.
Contacted, the bank Chairman SM Mahfuzur Rahman told The Business Post, “We are now very cautious to disburse loans but the board has not totally suspended loan disbursement.
“The bank is now emphasising fund mobilisation and loan disbursement will depend on the fund,” he said, adding, “If we have sufficient funds, we will disburse loans. Not just Janata Bank, the whole banking sector of the country is now facing a liquidity crisis.”
Mahfuzur said that repayments of the disbursed loans are not being made at the expected level amid the current economic crisis and that has affected the bank’s liquidity.
Why the liquidity crisis?
According to Janata Bank officials, the bank has been facing a severe liquidity crisis since last year due to the still-ongoing crisis in the foreign exchange market, aggressive lending against the falling trend of deposit growth and slow recovery from the defaulters.
They said that the lender had to purchase US dollars to cover import bills by taka, which also put pressure on the bank’s liquidity.
The bank’s excess liquidity and deposit both fell last year.
At the end of December last year, Janata Bank’s deposits stood at Tk 1,01,467 crore, down from Tk 1,01,621 crore in the same period of 2021.
The bank’s excess liquidity fell by 86.27 per cent to Tk 2,576 crore at the end of December last year. And now, it’s facing a liquidity shortage.
On June 8 this year, the bank borrowed Tk 3,505 crore through interbank repo and Tk 1,346 crore from BB repo to meet its shortfall.
The bank’s non-performing loans (NPLs) are also increasing continuously due to lacklustre recovery. This put extra pressure on the bank’s liquidity because it has to keep a 100 per cent provision against the defaulted loans.
At the end of December last year, the bank’s NPLs stood at Tk 14,387 crore, up from Tk 12,320 crore in the same period of the previous year. The NPLs rose to Tk 14,887 crore at the end of March this year, as per BB data.
How Janata Bank’s financial health worsened so fast
Once, the state-run bank was one of the country’s top-reputed financial institutions.
Its NPls were at Tk 5,345 crore at the end of 2017, but that rose to Tk 14,387 crore at the end of 2022.
The bank was facing a Tk 2,389 crore capital shortfall at the end of March this year, as per BB data.
Janata Bank’s 75 per cent loans are concentrated in the five branches, which is very risky, said a BB report.
Many scams and huge loan irregularities also helped put the bank in a dire situation, as per industry insiders.
The state-owned commercial bank lent more than Tk 10,000 crore to AnonTex Group and Crescent Group through irregularities, which turned the bank into an ailing entity.
A central bank investigation report said that the bank did not comply with BB’s single borrower exposure limit criteria for approving these loans.
The AnonTex loan and Crescent Group scandal are the two major failures responsible for the deterioration of the bank’s financial health, said industry insiders.
After a central bank probe found numerous irregularities in loans given to AnonTex Group, BB ordered Janata Bank in 2018 to conduct a functional audit and take legal action against those involved in the scandal. But the bank is yet to take any visible action.
Abdus Salam Azad, the bank’s former MD and CEO, was alleged to be involved in the loan irregularities but he managed to retire smoothly in April this year.
Regarding the issue, former BB governor Salehuddin Ahmed told The Business Post, “This is very bad. The bank has no visible action plan for a turnaround.”
He said that the lack of good governance and widespread corruption were mainly behind the current dire situation prevailing at Janata Bank.
