AB Bank, SIBL tender unconditional apology to BB for irregularities in buyer’s credit

AB Bank Limited and Social Islami Bank Limited (SIBL) have tendered their “unconditional apology” after a Bangladesh Bank (BB) investigation revealed irregularities in buyer’s credit issued to some business houses by their offshore banking units.

It was found that some debtors had shirked loan repayment, while yet others had utilised the money to pay off earlier loans taken from local sources.

When BB asked the two banks to explain the anomalies, they apologised, assuring such irregularities would not recur.

A senior BB official said the banks were told to ensure that credit given to the importers was not put to other use.

“Apart from telling them to make sure buyer’s credit is repaid on time, BB also asked the banks to reduce the credit limit,” the official said on condition of anonymity.

“It also warned of action against officials concerned, the bank, and debtors for any failure in future to repay the buyer’s credit in time,” the official said.

Bangladesh Bank officials say foreign exchange management goes awry if loans taken in foreign currency remain unpaid.

Central bank’s Chief Economist Biru Paksha Paul told bdnews24.com unpaid foreign-currency loans added to the interest burden.

“This leads to foreign currency outflow and creates trade imbalance,” Paul said.

“Organisations that pay the additional interest often cut the salaries and allowances of their employees to offset the loss,” he said.

According to the investigation report, AB Bank’s offshore banking unit at the Chittagong EPZ gave a loan of $7 million to its Karwan Bazar branch customer Buildtrade Foils Ltd and over $14.9 million to Buildtrade Engineering Limited.

With the loan amount, the two organisations in addition to procuring capital machinery and raw materials also repaid earlier loans taken at a high interest rate.

Neither the two businesses nor the bank branch had sought the BB and Board of Investment’s permission, mandatory in such cases.

Two organisations currently owe over $26.8 million to AB Bank. Of this, $14.1 million was converted into a “forced loan” without following proper procedures.

BB suspects the bank deliberately flouted the rules in connivance with its customers.

AB Bank officials, when contacted, chose not to comment.

SIBL, too, was involved in similar irregularities. It tendered an apology for the non-payment of buyer’s credit availed by Thermax Group, a customer of its principal branch, from the bank’s offshore banking unit at Chittagong EPZ.

A loan of $7.11 million taken by Thermax Group was overdue. But the BB’s investigation indicated that SIBL deliberately reduced the overdue amount.

The investigation also revealed the bank had allowed the Thermax Group to use the money it had earned by selling the raw materials it imported with the credit, for purposes other than repaying the loan.

Thermax Group’s Managing Director Shafikur Rahman could not be reached for his comment despite several attempts.

But senior Vice President Akmal Hossain, who signed the apology letter, told bdnews24.com that the matter had been settled.

“All dues of Thermax Group have been cleared and we will take steps as per the directive of BB. Now, there is no problem,” he said.