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Dramatic increase in payment defaults

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With the Farmers Bank, no one knows when the courtiers will end. And as the days go by, more and more depressing statistics come out.

Since being hit a year ago with massive corruption and irregularities, much of which is blamed on its former founding chairman, the bank has never been able to turn a profit and its debt portfolio Doubtful loans continue to swell as more and more loans, even the good ones, fail.

It seems that even good borrowers, and very few were there, suddenly realized that being in default is a better option.

The Farmers Bank found itself in the middle of a raging controversy when it was discovered that a large part of its loans had been granted without even any loan application or that the money had been paid to companies doubtful even before the loans are approved.

The Bangladesh Bank had squarely held its former chairman Mohiuddin Khan Alamgir, an AL lawmaker who got the ticket to run in the next election, responsible for the scam. Alamgir resigned from the board in the face of controversy although he denied involvement in the scam. Neither the regulator nor the anti-corruption commission prosecuted the scam as if mere resignation ended the case.

He does not have.

The farmers could not recover any of the loans he disbursed and ticked them off. But even more strikingly, since the bank virtually went bankrupt in 2017, it hasn’t recovered its unclassified loans either.

This means that even loans that were regular when it fell into trouble become irregular, putting more pressure on the bank’s health, which the central bank is trying to restore.

Farmers could not recover a single penny of its Tk 4,198 crore unclassified loans in the April to June quarter. Of its classified loans of Tk 1,521 crore, it may only recover Tk 2 crore, according to central bank data.

For any classified loan, banks must maintain a provision – in other words, banks set aside an amount equal to the amount of classified loans. This money cannot be presented as profit.

So, according to the figures, Farmers had 29% of its total loans in default as of June this year. But in September, the figure soared to an incredible 58% or Tk 3,070 crore.

Such a dismal performance led the Bangladesh Bank to warn farmers recently, according to central bank sources.

These latest developments only reflect the depth of the problem with farmers. When it sank due to corruption and irregularities, the government tried to bail out by forcing the four state-owned banks and the state-owned investment company, the Investment Corporation of Bangladesh, to buy Tk 715 crore of equity from the troubled bank.

This decision speaks more of politics than economics. There is no explanation why an investment company that should look after the interests of investors and invest money in profitable businesses chose Farmers instead. Why should public banks that operate with public money waste their funds on a failing bank? Simply put, this has become a classic case of transferring people’s money into the pockets of scammers.

Even after Banks came to its rescue, Farmers is still in its former abyssally low state. His depositors who claimed their money could not get any. Thirteen companies that deposited Tk 830 crore with the farmers claimed the money when due. As the bank was unable to meet the request, the matter remains pending with the central bank.

The farmers had gone on a campaign to collect deposits, setting up attractive advertisements for savers. But public confidence is at rock bottom and the campaign has had little impact. People are not interested in depositing money with a fraudulent bank.

Very unusual for a bank, its deposit is down. In December last year, the bank recorded negative deposit growth of 5% and the situation worsened in June with a figure of 15%.

With such bleak images coming out of the books, bank chief executive Md Ehsan Khasru at a recent event in Dhaka said “someone more powerful than the central bank” is responsible for systematic corruption within the bank. bank.

He did not name the person, but Bangladesh Bank investigations named Alamgir responsible for the scams.

Loan collection is improving and the bank has focused on increasing cash flow to help end the crisis, Khasru told the Daily Star when contacted.

Deposits come into the bank but outflows are greater than inflows, the bank’s top executive said.

In this perspective, the bank is trying to renew deposits with bodies that have matured funds with the bank, he added.

He said the bank had suspended lending until September 2019, in line with central bank instructions.

Bangladesh Bank first uncovered Farmers Bank scams in 2015 when it detected that loans of Tk 400 crore were issued without proper documentation and following procedures.

Later, another investigation in 2017 detected an even larger Tk 500 crore scam of a similar nature. The irregularities are blatant – some of these outright frauds – ranging from approving loans without asking, to taking out loans and not using it all for the purpose for which it was intended.

The central bank blamed Alamgir and the bank’s former executive committee chairman Mahabubul Haque Chisty for the scams.

Alamgir and Chisty resigned from the bank’s board in November at the insistence of Bangladesh Bank. Chisty was later arrested in April following an Anti-Corruption Commission case.

But these actions have not brought the farmers back into shape. It remains a bank that continues to cause concern, and this is costly for depositors and taxpayers.