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Lending suspended at 3 BASIC Bank outlets

BB steps in to rescue troubled state bank

Rejaul Karim Byron and Sajjadur Rahman
The central bank and the finance ministry have finally stepped in to rescue the troubled BASIC Bank, though they are yet to initiate any action against the instigator of the irregularities, the bank's chairman Sheikh Abdul Hye Bacchu.
As part of the rescue plan, Bangladesh Bank yesterday suspended fresh loan activities and disbursement of already sanctioned
loans at three of the branches of the staterun scheduled bank, where irregularities involving around Tk 4,500 crore were detected between 2009 and 2013.
The disbursement activities of the Gulshan, Dilkusha and Shantinagar branches will remain suspended until further notice from BB, said the letter.
The move comes just a day after it terminated Kazi Faqurul Islam's contract as the
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bank's managing director for his failure to check the rampant irregularities at his institution. The verdict also barred Islam from seeking employment in another bank for the next two years.
"We are happy to see the government has finally understood that the bank has been badly damaged,” said a senior BB official upon conditions of anonymity.
"But the main accused though, Chairman Sheikh Abdul Hye Bacchu, remains untouched," he added.
Established in 1989, BASIC was one of the best-run banks in the country until 2009, when the government appointed Bacchu as its chairman.
Spearheaded by Bacchu, the bank indulged 20 types of irregularities, ranging from giving out loans without any proper documentation or verification of customer's creditworthiness to not monitoring the loans it extended.
He also approved many loans when the branches themselves gave negative feedback on the clients, BB investigations found. In other words, the bank extended loans to known defaulters.
To show the financial health of the
bank to be better than it is, BASIC showed a host of classified loans to be regular ones. For instance, it showed a Tk 60 crore loan of M/s Ocean and Design (BD) Ltd to be unclassified, when it was the contrary.
BB investigations found that the bank's Gulshan branch extended a fresh loan of Tk 50 crore to a default borrower, Delta System Ltd, which is prohibited by the Bank Company Act.
Upon learning of the transgression, BB straightaway sent instructions to classify the loan, which BASIC did not act on. To make matters worse, a further Tk 30 crore loan was extended to the client.
Another instance of irregularity include handing out $4.25 lakh of export value to a client without the sum being repatriated. The bank never took any action on this.
The state-run bank also promoted officials by violating rules.
In a bid to check the irregularities, the BB in July last year signed a binding agreement with BASIC to restore discipline in the bank by December 2013.
The agreement obliged BASIC to limit its single borrower exposure to 15 percent of the bank's total capital, but
it overshot the ceiling for 61 of its clients, giving outTk 2,111 crore more in loans than it should.
BB stipulated that the state-owned scheduled bank raises its capital adequacy ratio (CAR) to 11 percent by the end of 2013. The CAR on December 31 last year stood at 4.5 percent.
It was also supposed to make up the capital shortfall ofTk 128.21 crore in 2013, but in reality, the capital deficit widened to Tk 647.38 crore by the end ofDecember.
The state-owned scheduled bank also fell short in cash recovery last year: it was supposed to be a minimum ofTk 212 crore but BASIC Bank managed Tk 142.82 crore.
The troubled bank's nonperforming loan ratio by the end of 2013 needed to be 5 percent, but it stood at 11.72 percent.
Another target was to transform the loss-making branches into profitable ones during the course of the year, which, again, it failed to. Of the total of 68 branches, 33 remain loss-making.
The central bank also appointed an observer in the bank last year, but all of BB's steps until now came in vain.