The central bank has approved Janata Bank's proposal for rescheduling loans of three companies amounting to Tk 3,138 crore under the large-loan restructuring policy.

The three companies are: Beximco Group -- Tk 1,849 crore, Jamuna Group -- Tk 598 crore, and Ratanpur Group -- Tk 691 crore.

Bangladesh Bank, in a major move on January 27, allowed defaulters of large loans -- Tk 500 crore and above -- to reschedule their debts on the ground that they were affected by external and domestic factors beyond their control.

The deadline for sending in applications for rescheduling expired on June 30, and ten indebted conglomerates have sought to reschedule loans amounting to Tk 14,540 crore.

The BB has formed a scrutiny committee led by Executive Director Naushad Ali Chowdhury to examine whether the proposals conform to the large loan rescheduling policy. To date, the committee has given the green light to three proposals, according to Chowdhury.

The remaining proposals are being examined as per the central bank guideline, and the committee hopes to inform the banks about their decisions soon.

Another member of the scrutiny committee said some proposals have shortcomings, so they have sought clarifications from the banks. Once the clarifications come through, decisions will be taken on the proposals.

The interest on the loans of Beximco and Jamuna has been set at 10 percent and the rate for Ratanpur Group is upwards of 10 percent but less than 13 percent.

A high official of Janata Bank said the normal rate of interest is 12 to 13 percent and the repayment period three to five years. They have charged a lower interest rate, which would slightly erode their profitability.

The move to give large-loan defaulters a chance to reschedule their loans came after Beximco applied to the BB to rescue it from a cash crunch.

So far, eight banks have sought to reschedule loans worth Tk 5,619 crore of Beximco:  the proposal by Janata Bank has been approved, while those of other banks are still under scrutiny.

For Beximco's loan rescheduling, banks have proposed to charge interest rates between 10 percent and 12.5 percent.

Ten banks have sent proposals to reschedule Jamuna Group's Tk 1,685 crore loans, of which only the Tk 598 crore-proposal from Janata Bank got the clearance.

Other proposals under scrutiny are: Thermax Group's Tk 667 crore (with one bank); Sikder Group's Tk 1,838 crore (with three banks); Abdul Monem Ltd's Tk 577 crore (with four banks).

Keya Group's loans amounting to Tk 879 crore with five banks, SA Group's Tk 918 crore with five banks, BR Spinning's Tk 572 crore with four banks and AnonTex Tk 1,094 crore with one bank, are also sitting on the scrutiny committee's table.

The banks sent in proposals for six more companies but those did not make the cut as the total loan amount was less than Tk 500 crore.

To take the large loan restructuring facility, a borrower must pay a minimum of 1 percent of the loan as down payment if the loan figure exceeds Tk 1,000 crore.

In case of loans between Tk 500 crore and Tk 1,000 crore, the borrower has to pay 2 percent as down payment.

After getting the restructuring facility, large borrowers will enjoy 50 percent term loan facility against their last credit limit from the banks and 60 percent for their working capital.

The restructured loans will have a maximum tenure of 12 years for term loan and six years for demand and/or continuous loan.

The interest rate against the outstanding balance of the restructured loan may be at a discount from the prevailing declared rate of the bank.

However, it may not be less than the cost of fund plus 1 percent. The banks will have to keep the restructured loans under special mention accounts and they must keep 2 percent provision against such type of loans. The banks will have to withdraw the restructuring facility if any borrower fails to repay instalment for two consecutive quarters.

Bangladesh Bank issues a master circular asking all financial institutions to follow anti-money laundering and terrorist financing rules strictly.

The central bank has issued a stern warning to the four state-run commercial banks for their failure to improve their financial conditions, saying observers will be put in place if the situation does not improve.

Bangladesh Bank said punitive measures will be taken against the chief executives of Sonali, Janata, Agrani and Rupali banks, including their removal from the posts, for their negligence to compliance.  

The government will be informed about the incidents of negligence committed by board members so that actions are taken against them, it said.

“If the situation does not improve we will not hesitate to appoint observers, if necessary, on the basis of CAMELS rating,” said Bangladesh Bank Governor Atiur Rahman yesterday.

Financial scams such as Hall-Mark and BASIC Bank have tainted the image of state lenders, Rahman said.

Negligence by the boards of the banks and the higher executives contributed to such scams, he said.

Rahman made the comments during a meeting with the chairmen and managing directors of Sonali, Janata, Agrani and Rupali banks.

The meeting discussed the status of the performance agreement signed by the four banks with the BB in the first quarter of the fiscal year.

The warning came after an increase in numbers of loss-making branches, loan defaults and capital deficits.

The number of loss-making branches of the four banks increased from 121 to 294 between December last year and March this year.

Sonali Bank's loss-incurring branches stood at 77 in March from 31 in December and Agrani's 86 from 22.

The loss-making branches of Janata increased from 60 to 95 in March and Rupali's 36 from 8.

For serious irregularities at the branch level, the chief executive will be held liable first, the governor said, while asking the banks not to apply for permission for new branches until their CAMELS ratings improve.

He said the picture of the financial condition in banks is not pleasing at all. Default loans and capital deficits are the major problems facing the banks.

The other problems include high-operating costs; poor efficiency; and weakness in corporate governance, risk management, internal audit and asset, and liability management.  

The governor said assets would continue to erode until their quality improves.

“It is unfortunate that many of you are not properly following the prudential regulations of Bangladesh Bank. As a result, new risks are appearing. But remember that we are getting tougher in dealing with breaches of laws.”

Rahman asked the boards to take the necessary steps so that the audit committees can work fearlessly. 

In response, the banks said typically many branches' losses increase in the first quarter but by the end of the year they pull themselves into the green.

The banks also notified the governor about the problems they are facing. One of their problems is state-run Bangladesh Petroleum Corporation, which owes thousands of crores to state banks. 

In the past, they gave huge amounts of loans to BPC at low interest rates. Now that the financial condition of the country's sole oil importer is good, it can start repaying the loans but is not doing so, sources said.

Thanks to record low prices of oil, the BPC has been making profits since last January. It however has loans and other debts totalling Tk 29,000 crore, as it had to sell oil at subsidised rates. 

One of the banks also said the interest rates for the loans under the large loan restructuring facility should be at least 10 percent.

Besides, banks should be allowed to take instalments against the loans soon after the restructuring facility takes effect.

Under the restructuring facility, the central bank has set one year as the grace period.

Bangladesh Bank has taken an initiative to improve banks' financial health by increasing their capital adequacy ratio (CAR) in line with Basel III standards.

Basel III is a comprehensive set of reform measures, developed by the Basel Committee on Banking Supervision, to strengthen regulation and supervision and reduce risks of the banking sector globally.

To start the process in Bangladesh, central bank officials yesterday sat with the board of Sonali Bank, which has a huge capital deficit.

BB General Manager SM Rabiul Hassan, Deputy General Manager Ibrahim Bhuiyan and Joint Director Shabari Islam were present at the meeting at the head office of Sonali Bank.

A BB team will hold meetings with other banks that have capital shortfall.

As on June 30, 2015, the CAR of Sonali was 2.44 percent of its risk weighted assets, much lower than the required minimum ratio of 10 percent, according to the central bank. In December 2014, the bank's CAR was 7.37 percent, which fell to 5.26 percent in March.

BB has calculated the ratio by taking the value of Sonali's goodwill into consideration, said Pradip Kumar Dutta, managing director of the bank.

When Sonali was corporatised in 2007, its goodwill value was estimated at Tk 6,574 crore with a condition of monetising the total amount in 10 years. In 2014, the goodwill value of the bank stood at Tk 1,972 crore.

In June this year, as per Sonali's calculation, the bank's CAR was 7.25 percent, Dutta said.

He said they have sent a letter to the BB in this regard and the next steps would be taken based on the decision of the central bank. Dutta said his bank has taken a number of steps and he hopes their capital will increase further by December.

A high official of the central bank said their next meeting will be with Janata Bank.

At present, the banks maintain CAR as per Basel II standards. Last year, the central bank decided to implement the Basel III framework and conducted a quantitative impact study.

On the basis of the study, they also sent a roadmap to the banks on how they would implement the framework.

In December 2014, the average capital adequacy ratio of banks in Bangladesh was 11.4 percent, while it was 16.9 percent in Sri Lanka, 17.1 percent in Pakistan and 12.8 percent in India.