Originally posted in The Business Standard on 20 November 2024
Janata Bank’s 61% loans soured mainly for Beximco, S Alam
To continue daily operations, the bank is now forced to borrow between Tk18,000 crore and Tk20,000 crore daily from other banks. For the first time in its history, the bank is projected to face operational losses of around Tk2,500 crore by December, after reporting Tk1,474 crore in losses by 30 September
Once a financial powerhouse, the state-owned Janata Bank now finds itself in a difficult situation with non-performing loans (NPLs) surpassing 61% of its portfolio – a crisis resulting from unchecked lending to major conglomerates such as Beximco and S Alam groups, leaving the bank in existential crisis.
This reliance on borrowing raises concerns about potential non-compliance with regulatory Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) requirements, thereby increasing the lender’s solvency risk.
On 14 November, Janata Bank Chairman Muhammad Fazlur Rahman wrote to Finance Secretary Md Khairuzzaman Majumder, outlining the bank’s critical situation and requesting immediate guidance from the Ministry of Finance and the Bangladesh Bank.
Fazlur, however, declined to comment when approached by TBS, explaining that the issue involves complex policy considerations.
Internal records from Janata Bank reveal that both Beximco Group and S Alam Group obtained loans that breached banking regulations during former prime minister Sheikh Hasina’s 15-year tenure.
Beximco owes Janata Bank a total of Tk23,407 crore, with Tk19,507 crore categorised as bad loans and Tk3,394 crore overdue, which is expected to turn bad within the next few months.
Alarmingly, this borrowing surpassed the single borrower exposure limit of 25% of a bank’s capital, reaching an overwhelming 410%. Despite this clear violation of the Bank Company Act, the central bank failed to act using its regulatory oversight.
Similarly, S Alam Group’s loans, totalling Tk11,000 crore, have also become non-performing.
Together, the two conglomerates account for nearly 50% of Janata Bank’s total NPLs, playing a significant role in the bank’s financial decline.
“Unprecedented liquidity crisis”
According to the chairman’s letter, Janata Bank is facing an unprecedented liquidity crisis. The bank’s inability to recover loans has left it unable to extend new credit, while its reliance on interbank borrowing has become increasingly unsustainable.
In the letter, Fazlur Rahman states, “The failure to effectively recover loans from large borrowers, combined with continued lending to them, has resulted in loan concentration among a few clients. Without halting new loans to these borrowers, the bank cannot overcome this crisis.”
Recently, the bank rejected a Tk60 crore loan request from Beximco Group.
As of now, Janata Bank’s provision shortfall has reached Tk39,086 crore, while its capital deficit has grown to Tk33,921 crore – a situation unprecedented in the bank’s history.
Bangladesh Bank data show that total defaulted loans in the banking sector stood at Tk2.85 lakh crore as of September, with Janata Bank accounting for 21.22% of the amount.
“To ensure Janata Bank’s survival, loan recovery from large borrowers is imperative. Given the recent government change, overcoming the crisis and ensuring the bank’s existence requires coordinated support from the government, the central bank, and relevant regulators,” said the chairman.
According to Janata Bank data, in recent years, certain branches indiscriminately extended loans to a limited number of borrowers, including Beximco, S Alam Group, and Thermex, violating single-borrower credit limits and other regulations.
Fund mismanagement has forced the bank to rely heavily on borrowing to sustain daily operations – a matter of concern for the government as the bank’s owner, the chairman noted in the letter.
‘Find ways for loan recovery before seeking govt help’
Dr Zahid Hussain, a member of the task force formed for reforming the banking sector, told TBS, “Janata needs to assess the amount of collateral against the loans to big groups. Asking the finance ministry for guidelines means asking for money from the government to save the bank, putting the problem of Janata Bank on the government’s lap.”
Janata Bank must first develop its own loan recovery strategy, assess collateral value, and take steps to prevent future defaults before seeking government assistance, he added.
Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD) and director of the Bangladesh Bank, told TBS, “Two of the largest defaulters are S Alam and Beximco and they wreak havoc wherever they go.
“The situation at Janata Bank is dire. A bank cannot function this way. The assets of Beximco and S Alam should be sold to recover the bank’s dues. If not, there’s no point in keeping large, unprofitable banks like Janata alive. It should either be liquidated or sold to foreign investors.”
Fahmida said, “Policymakers and the Bangladesh Bank must find a solution to prevent job losses for employees.”