Krishi Bank hides Tk3,188 crore defaulted loans thru window-dressing

Bangladesh Krishi Bank, the largest agriculture sector financier in the country, is under central bank scrutiny for allegedly concealing around Tk3,188 crore in defaulted loans, which is around 50% of the banks' total loans defaulted, through "window dressing".

According to a Bangladesh Bank inspection report dated June 2023, Krishi Bank reported about Tk3,315 crore in defaulted loans, but an inspection found that the actual amount was about Tk6,503 crore.

The report also reveals that by concealing the defaulted loan amount, the government-owned bank has avoided around Tk2,000 crore in provisioning, posing a risk to its depositors.

The report indicates that the bank engaged in window dressing by providing incorrect, false, or partial information. It also mentions that information was deliberately concealed in some cases.

The central bank report also identified irregularities within the bank, including data manipulation, to inflate profits, and a perceived lack of transparency regarding bad borrowers.

Krishi Bank has failed to uphold transparency in the preparation of financial statements, the report said.

Following an unsatisfactory verbal explanation from the bank, the central bank has demanded a written explanation.

The Business Standard attempted to reach out to Krishi Bank's Managing Director Md Shawkat Ali Khan for a comment on the issue. But, his personal secretary said the managing director would not be providing any comments on the matter.

Instead, he suggested speaking with Jamil Ahmed, assistant general manager of the bank, who oversees the public relations department, to obtain Krishi Bank's statement.

Jamil Ahmed told TBS, "In accordance with our rescheduling policy as of September 2022, numerous defaulted loans have been rescheduled. However, these adjustments did not appear in our online report. As a result, central bank officials found that the amount of defaulted loans was high during their inspection."

He said, "Our team visited the Bangladesh Bank in response to their inquiry on the matter. The central bank expressed dissatisfaction with our explanations and has requested additional clarifications. We will respond soon."

Seeking anonymity, a senior official from the Bangladesh Bank told TBS, "Our inspection team has identified significant discrepancies in their loans, provisioning, and non-performing loans.

"They [Krishi Bank] presented some irrelevant information during their visit to the central bank. We were dissatisfied with their explanations and have requested a written response. They have not provided any further explanation yet."

Irregularities found by the central bank

According to the central bank report, irregularities found in Krishi Bank's financial statement are particularly evident regarding the total loan amount, defaulted loans, loan provisioning, employee loans, etc.

The report stated that Krishi Bank disclosed its total loans, excluding those taken by employees, at Tk30,226 crore at the end of June 2023. However, according to the Core Banking Solution (CBS) report prepared by the loan classification department of the bank, the amount at that time was Tk29,857 crore.

These irregularities are undermining the good governance of the banking sector and putting the financial condition of the banks in grave danger. This situation creates significant uncertainty regarding future refunds to depositors

Salehuddin Ahmed, former governor of the Bangladesh Bank

Although the amount of loans taken by bank employees during the time was Tk2,225 crore, the bank concealed Tk403 crore and reported Tk1,822 crore as employee loans to the central bank.

In this regard, the central bank has instructed the bank to provide information on the classification and provisioning of loans to the Department of Banking Inspection of the Bangladesh Bank.

Furthermore, the rescheduled loan amount of the bank as of June 2023 was Tk10,499 crore. Of this, short-term agricultural loans amounted to Tk8,444 crore.

About the irregularities of the bank concerning loan rescheduling, the Bangladesh Bank report stated that in almost all cases, loan rescheduling was carried out by changing the repayment date without any communication with the customer.

The report also mentions that by rescheduling its short-term agricultural loans, Krishi Bank is making its loan portfolio evergreen and rolling over these loans, a practice deemed "contrary to ethics and proper banking practices".

Besides, the Bangladesh Bank has information that Krishi Bank does not report the defaulting loans of most of the borrowers taking short-term agricultural loan facilities to the Bangladesh Bank's Credit Information Bureau (CIB).

Md Mezbaul Haque, spokesperson of the Bangladesh Bank, told TBS that Krishi Bank has concealed Tk3,188 crore of defaulted loans. However, according to their CBS report, their defaulted loans stand at Tk8,257 crore. But the bank has made a mistake in the CBS report. Their actual defaulted loan amount is Tk6,503 crore.

"We have sought a written explanation regarding various irregularities in the bank, including concealment of defaulted loans. If the bank authorities cannot provide a suitable explanation, then action will be taken against them as per the Bank Company Act," he said.

An official from the central bank said according to the Bangladesh Bank's policy, provisioning of 20% to 100% against defaulted loans is required. By concealing around 50% of defaulted loans, Krishi Bank avoided provisioning amounting to about Tk2,000 crore. This has posed a risk to the depositors.

Salehuddin Ahmed, former governor of the Bangladesh Bank, said concealing information about defaulted loans has become a common practice in the country's banks. Despite many customers being defaulters, banks engage in such irregularities to make their defaulted loans appear less than the actual amount.

He said these irregularities are undermining the good governance of the banking sector and putting the financial condition of the banks in grave danger. This situation creates significant uncertainty regarding future refunds to depositors.