From 10%, Premier Bank’s default loans jump to 42% in a year

Since its inception in 1999, Premier Bank has managed to project a glossy business image. But that perception has begun to crumble as the bank’s bad loans surged nearly fivefold within just a year, hollowing out the balance sheet to a degree that is no longer easy to conceal.

Defaulted loans at the third-generation bank climbed to 42 percent, or Tk 13,959 crore, at the end of September last year, according to Bangladesh Bank (BB) data. The ratio stood at 10 percent in the same month of 2024 and below 5 percent a year earlier.

The jump in bad loans forced the commercial lender to make heavy provisions. However, Premier Bank failed to meet the full regulatory requirement, leaving a provision shortfall of Tk 10,048 crore, according to BB data.

Depositors responded to the weakening financial position by withdrawing funds amid regulatory intervention and changes in the board. The pressure culminated in a net loss of Tk 677 crore in the July-September quarter last year.

The deterioration has become more visible months after HBM Iqbal, founding chairman of the bank, stepped down from the board, ending his 26-year tenure following the political changeover in August 2024.

BB data show that Premier Bank’s loan portfolio was heavily concentrated among a small group of large borrowers. A large chunk of its funds was lent to just 24 clients, several of whom have since slipped into default.

Among the top borrowers are Bashundhara, Blue Planet, Western Engineering (Pvt) Ltd, Karnafuly, Crony, Vincen Consultancy Pvt Ltd, Jaj Bhuyan, Abdul Monem Limited, Saad Musa, ACI, Diamond and Doreen.

As business conditions tightened after the August uprising and political alignments shifted, loan recoveries slowed, according to bank officials. They said that defaults rose after loan classification rules were tightened and as several borrowers linked to the ousted government shut operations, faced legal trouble or left the country altogether.

Following the political changeover, the central bank dissolved the board in August last year and formed a new seven-member panel. Arifur Rahman, founder vice-chairman and an entrepreneur shareholder, was appointed chairman. 

Rahman is now overseeing operations of the bank.

Amid the regulatory intervention, deposit growth slowed. As of September last year, total deposits and other accounts stood at Tk 33,587 crore, down from Tk 34,766 crore at the end of December 2024.

Rahman said the weak financial condition was largely the result of accumulated problems from previous years. “However, we are trying to stabilise operations,” he told The Daily Star. 

“Under policy support from the central bank, a number of loans are being rescheduled, which is why non-performing loans are declining in the December quarter,” he added.

The chairman said the losses were mainly driven by higher provisioning requirements and added that the bank would seek a deferral facility from the BB to meet provision obligations.

He said defaults rose as several businesspeople close to the previous government were absconding, in jail or had shut down their businesses. Changes in loan classification rules also contributed to the increase.

PAST IRREGULARITIES UNDER SCANNER

Investigations by the BB, the Bangladesh Financial Intelligence Unit (BFIU) and the Anti-Corruption Commission (ACC) have previously uncovered irregularities at Premier Bank linked to the tenure of former chairman HBM Iqbal.

These include the alleged use of bank assets for personal gain, placement of deposits at unusually high interest rates, withdrawals from frozen accounts and misappropriation of advertising funds.

A central bank investigation found that for more than 40 months since 2020, Iqbal and his family members received Tk 10.31 crore as rent for the 20th and 21st floors of Iqbal Centre in Banani, despite the bank neither renting nor using those floors.

Premier Bank head office is located at Iqbal Centre, a building owned by Iqbal and his family members. Central bank officials described the arrangement as a clear violation of banking rules. 

A former member of parliament, Iqbal is also chairman of Premier Group of Companies Ltd.

A BFIU investigation found that some bank officials, including former managing director M Reazul Karim, helped launder Tk 3.44 crore and assisted the former chairman and his family in transferring foreign currency abroad through credit card misuse.

The BFIU also found that Iqbal and four family members used Premier Bank credit cards to buy properties and conduct foreign transactions beyond permissible limits.

The ACC filed five cases against 15 people, including former chairman Hefjul Bari Mohammad or HBM Iqbal, his two sons, senior bank officials, board members and the managing director of an advertising agency, over the alleged embezzlement of Tk 8.17 crore in the name of advertising promotion.

Asked about the irregularities, Rahman said, “I do not want to comment on this matter. The ACC is working on it.”

After the change of government, Iqbal fled the country. There are allegations that he later issued threats to the current chairman and other officials.

Asked about the head office, Rahman said, “The rent for this office is very high. We are looking for offices elsewhere at a lower rent. We will soon move the office out of Iqbal Centre.”

A forensic audit is currently underway at the bank. Managing Director Mohammad Abu Zafar has been sent on leave, while Manzur Mofiz, former managing director of One Bank, has been appointed additional managing director and given responsibility as acting managing director.