AB Bank’s ‘hidden’ bad loans push NPLs to 84%

AB Bank's bad loans have ballooned to an unprecedented level, with nearly 84 percent of its total loans in default, a sign of severe financial distress caused by years of irregularities at the country's first private commercial lender.

According to the bank's latest quarterly statement for the period ending in September, AB Bank had Tk 35,982 crore in outstanding loans. Of this, Tk 30,138 crore cannot be recovered on time and has been officially categorised as non-performing loans (NPLs).

The bank had Tk 10,115 crore in bad loans as of September 2024, amounting to 31 percent of its lending portfolio. Officials say, the jump indicates that Tk 20,023 crore in previously undisclosed bad loans have surfaced within a year.

The disclosures come amid a forensic audit being conducted by a foreign auditor, appointed under recommendations from the government's Banking Reform Task Force. Bangladesh Bank officials said the auditor has completed an asset quality review, which includes checking whether loans have been correctly classified, and will soon submit the findings.

HIDING TRUE EXTENT OF STRESSED ASSETS

Officials familiar with the matter said the bank had long concealed the true extent of its stressed assets. They attributed this to irregular management practices, misuse of loan facilities, and an ongoing failure to recover large loans.

For years, they said, the bank kept its books looking healthier than they truly were by taking advantage of loan deferral facilities from Bangladesh Bank – temporary waivers that allow troubled banks to delay classifying loans as defaulted.

The latest revelations show that nearly all of the bank's key financial indicators have deteriorated.

Amid growing pressure from deposit withdrawals sparked by the audit, AB Bank has requested an additional Tk 2,000 crore in liquidity support from Bangladesh Bank to maintain day-to-day operations. The development comes at a time when the regulator is under the process of merging five troubled banks.

Liquidity support is emergency cash provided by the central bank to help troubled banks meet withdrawal demands. During the tenure of the interim government, AB Bank has already taken Tk 500 crore in such support, alongside eight other lenders.

The crisis has also triggered changes in top management. On November 19, Managing Director and CEO Syed Mizanur Rahman resigned, citing personal reasons. He is expected to join Meghna Bank as managing director pending central bank approval.

Rahman, who took charge of AB Bank in May after serving as additional managing director, told The Daily Star last week that the institution had previously taken over mortgaged properties against loans from defaulting borrowers and listed them as non-banking assets. This accounting move temporarily reduced the bank's bad loan ratio, as non-banking assets are not counted as defaulted loans.

"However, the bank failed to take full possession of those assets due to legal complications, leading to their reclassification as non-performing loans, pushing the figure sharply upward," he said.

Another senior official confirmed that around Tk 1,500 crore worth of non-banking assets had now been reclassified as bad loans.

He alleged that the practice of reducing bad loans by converting mortgaged assets into non-banking assets was carried out with legal assistance from a firm linked to a former chairman.

AB Bank reported a Tk 3,113 crore net loss in the first nine months of this year, compared with a profit of Tk 1.58 crore in the same period last year.

At the end of 2024, the lender had a capital shortfall of Tk 4,298 crore and posted a net loss of Tk 1,917 crore. A capital shortfall occurs when a bank's losses are so large that it no longer has the minimum funds required to operate safely.

Launched in 1981 as the first private commercial lender of the country, AB Bank's troubles did not emerge overnight. They date back at least eight years, when it drew public criticism for a 2016 money laundering scandal. A Bangladesh Bank investigation found that nearly Tk 165 crore had been transferred abroad under the guise of investment through two dubious organisations, eventually ending up in the United Arab Emirates.

Industry insiders claim that at the time, the bank was controlled by the family of M Morshed Khan, a former BNP cabinet member and one of AB Bank's founding sponsors.

During the scandal, M Wahidul Haque served as chairman. He, along with vice-chairman Salim Ahmed and director Faheemul Huq, resigned in 2017. The central bank appointed an observer that same year, and AB Bank continues to have a Bangladesh Bank coordinator overseeing its operations as its financial condition has yet to stabilise.

Later in 2018, the Anti-Corruption Commission (ACC) arrested three people including former chairman Haque for alleged money laundering.

In 2019, Tarique Afzal was appointed president and managing director. His tenure was marred by controversy over his political involvement: despite being the head of a private bank, he was a member of the Awami League's international subcommittee.

AB Bank continues to struggle to recover large loans from several corporate groups, including Beximco, Sikder, Asian City, Buildtrade, Orion, and Mahin. Most of these loans have now defaulted, and legal proceedings are ongoing, Rahman said.