State-owned Janata Bank in serious crisis amid massive bad loans

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Janata Bank

As of December 2023, Janata Bank, a state-owned institution in Bangladesh, finds itself grappling with a significant financial crisis. The bank has disbursed loans amounting to Tk 91,158 crores (US$10.6 billion), with a staggering 76.33 percent (Tk 69,584 crores eqavelant US$8.1 billion) allocated to just 19 customers. The concentration of such a vast amount of loans in the hands of a few has not only highlighted the risks of poor loan distribution practices but also exposed the severe governance issues within the bank.

Janata Bank’s loan distribution shows a disturbing trend where a significant portion of its capital is tied up with a few major borrowers. The top five customers alone owe Tk 48,866 crores (US$5.7 billion), which is 53.60 percent of the total disbursed loans. This concentration is even more alarming when considering that six of the top 19 borrowers have defaulted, accounting for 81.21 percent of the bank’s total defaulted loans.

The total amount of defaulted loans at Janata Bank was Tk 17,501 crores (US$2.0 billion) as of December 2023, representing 19.20 percent of the total loans disbursed. Out of this, six institutions have defaulted on loans amounting to Tk 14,213 crores (US$1.6 billion). The bank’s financial woes have only worsened, with defaulted loans rising to Tk 30,495 crores (US$2.6 billion) by March 2024, making up 31 percent of the disbursed loans. Abdul Jabbar, Managing Director and CEO of Janata Bank, acknowledges that this debt has accumulated over the past 50 years, emphasizing the chronic nature of the problem.

The internal reports of Janata Bank reveal a pattern of poor decision-making and lack of good governance. Loans were disbursed generously to a few institutions without following proper procedures, from branch-level officials to the highest policy-making forum. This has led to a weakened financial base for the bank, exacerbated by various irregularities. The situation has become so dire that the bank’s export development fund (EDF) loan disbursement has been halted due to irregularities in foreign trade.

A significant portion of Janata Bank’s loans is tied up with a few major groups. A special group among the top customers has taken loans amounting to Tk 23,071 crores , with Tk 22,203 crores funded and Tk 871 crores non-funded. Another special group, in the second position, owes Tk 9,788 crores, with Tk 8,992 crores funded and Tk 796 crores non-funded. This group has defaulted on Tk 1,215 crores as of December 2023.

The much-discussed Anontex Group, a major garment exporter, holds the third position with a total debt of Tk 7,755 crores. Out of this, Tk 7,708 crores are defaulted. Janata Bank had offered an interest waiver of Tk 3,359 crores to this group on the condition of full repayment, but this facility was revoked by the central bank in April after an audit revealed fraud and scams. Consequently, Tk 7,708 crores are now classified as defaulted.

Other significant defaulters include the Bangladesh Agricultural Development Corporation (BADC), owing Tk 4,374 crores, and Crescent Group, with a combined debt of Tk 3,878 crores across three companies. The Bangladesh Petroleum Corporation (BPC) owes Tk 3,623 crores, while the Bangladesh Chemical Industries Corporation (BCIC) has a debt of Tk 2,921 crores. The list continues with substantial amounts owed by various other groups and corporations, highlighting the widespread nature of the issue.

The former chairman of the Association of Bankers Bangladesh (ABB), Nurul Amin, expressed concern over the concentration of loans in a few customers. He acknowledged that while Dhaka and Chittagong are major commercial hubs, concentrating investments in a few entities poses significant risks. Amin also criticized the practice of disbursing large loans to a handful of institutions, stating that while it may be legally permissible with central bank approval, it is not morally justifiable. He emphasized that this practice is particularly undesirable during a crisis in the banking sector.

Janata Bank’s current predicament underscores the urgent need for reforms in governance and loan distribution practices. The concentration of loans in a few hands has exposed the bank to significant risks, leading to a precarious financial situation. There is a pressing need for improved decision-making processes, stringent adherence to proper loan disbursement procedures, and enhanced oversight to prevent such issues in the future.

Addressing these challenges will require a comprehensive approach involving regulatory reforms, improved internal controls, and a focus on transparency and accountability. The central bank and other regulatory bodies must play a proactive role in ensuring that state-owned banks like Janata Bank adhere to best practices in governance and financial management.

The crisis at Janata Bank is a stark reminder of the consequences of poor governance and risky loan distribution practices. The bank’s journey towards financial stability will be arduous, but with concerted efforts and a commitment to reform, it is possible to turn the tide and restore confidence in the institution.

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