Bangladesh Bank yesterday appointed an observer to Farmers Bank after the banking regulator found that the health of the newly established bank is deteriorating fast.

ANM Abul Kashem, general manager of the foreign exchange investment department of the BB, has been made observer in the board of the bank, according to an office order of the central bank issued yesterday.

“We want to help the bank develop loan discipline and improve risk management and internal control,” Subhankar Saha, executive director and spokesman of the central bank, told The Daily Star.

“Our experience shows that appointment of an observer helps problematic banks improve their condition.”

Earlier, the BB detected gross violation of banking rules in sanctioning and disbursing loans, and incidents of hiding default loans amounting to around Tk 400 crore in Farmers Bank, which started its journey on June 3, 2013.

Three BB investigation teams detected the irregularities in the bank's Gulshan, Motijheel and Shyampur branches between September and November of 2015.

The bank disbursed fresh loans to defaulted clients by managing fake reports of the Credit Information Bureau of the central bank.

The bank also took loans from other banks breaching rules, according to the inspection report.

BB probe found that the bank's Executive Committee Chairman Mahabubul Haque Chisty, Managing Director Choudhury Moshtaq Ahmed, Additional Managing Director AKM Shameem and six other officials were responsible for the anomalies.

In October last year, the central bank issued letters to Muhiuddin Khan Alamgir, chairman of the bank and also an Awami League leader, and the managing director, asking them to take actions against the officials involved in the irregularities.

But the bank did not take any actions.

Earlier in November, the BB appointed observers to four state-owned banks -- Sonali, Janata, Rupali and Agrani -- after their key financial indicators such as capital adequacy and classified loans took a turn for the worse.

In addition to these banks, state-run BASIC, partially state-owned Bangladesh Commerce Bank and privately-owned ICB Islamic Bank, Islami Bank, Mercantile Bank and National Bank have BB-appointed observers in their respective boards.