Corruption and loan irregularities by board members are pushing yet another financial institution towards the brink of insolvency. This time, it is First Finance, a non-bank financial institution.
Its financial health has deteriorated to the point that it is now unable to maintain the mandatory cash reserve with the central bank.
Any financial institution, banks or non-banks, must keep 19 percent of its depositors’ money in the form of statutory liquidity ratio (SLR) and cash reserve ratio (CRR) with the Bangladesh Bank.
As of September, First Finance has a cash reserve deficit of Tk 221.87 crore, which prompted the BB on December 3 to slap it with a fine of Tk 2.21 crore.
An investigation carried out last year by the BB revealed that AQM Faruk Ahmed Chowdhury, former chairman of First Finance, embezzled more than Tk 4 crore through irregularities, including loan forgery.
Faruk resigned from the post of chairman in May last year only for his brother AQM Faisal Ahmed Chowdhury, who was found to be an accomplice in the corruption, to take over.
Prior to his elevation to the post of chairman, Faisal was serving as the vice-chairman of First Finance. He is a sponsor director of Alphabet Associates Ltd and Alphabet Systems Ltd, both of which are owned by his brother.
Several top officials including the then chief financial officer MA Matin and the then head of treasury Ashfaqur Rahman also colluded in committing the misdeeds, the investigation found.
According to the probe report, Faruk received remuneration despite not attending board meetings, misappropriated Tk 65 lakh from selling land that was mortgaged against default loan, and received money against false advertisement.
Faisal was given a home loan of Tk 70 lakh overruling the board decision. He did not repay the loan.
The probe also found that some large loans were given to Al-Madina Enterprise, Aftab Enterprise, Munshi Traders, Dolfin Car Centre, Mabco Group, Mohammad Siddiqur Rahman, Hafijul Islam and Runa Trading Corporation from its Agrabad, Corporate, Gulshan and Board Bazar branches. All loans were issued based on forged documents and eventually turned bad. In some cases, innocent officers were punished by the then-board in order to hide the misdeeds of the directors, cited the investigation report.
Despite being the head of the procurement department of First Finance, Chowdhury Moin Ahmed Mujib supplied goods to the NBFI at high price from his own firm Business Link and Business Communication Services, getting a windfall in the process. On paper, Mujib’s wife owns the firm.
Mujib was terminated from First Finance as per recommendation of the probe report.
Meanwhile, First Finance has urged the central bank to waive its latest penalty of Tk 2.21 crore on the ground that it will plunge into insurmountable liquidity crisis if it has to pay up.
Also in the letter to the BB, the NBFI, which has been failing to maintain the required cash reserve with the central bank since 2015 and been appropriately fined several times, said the continuous financial penalty has hurt its profit.
In 2015, the company was penalised Tk 9 lakh for shortfall in cash reserve of Tk 7.42 crore, according to a central bank report. It then paid Tk 2 crore in penalty in 2015-16 for non compliance with the CRR and SLR rules.
The NBFI incurred a loss of Tk 14 crore in the first nine months of 2017, according to its financial statement.
The company was listed with the Dhaka Stock Exchange in 2003 and for the last two years it has been a “Z” category stock. Its share traded at Tk 12 on the Dhaka bourse yesterday.
The central bank has appointed Md Abu Taher, general manager of the BB’s foreign exchange operation department, as an observer in the NBFI.
Currently, the non-performing loans of the financial institution are 30 percent of its total loans.
The firm has been suffering from liquidity crisis for not getting funds from banks, said Sarwar Shafiq, its company secretary.
He said many NBFIs depend on bank loans for their funds, but now banks do want to lend First Finance due to its deteriorating health.
The company has been in the “Z” category stocks since 2015 because of its failure to pay dividends.
Shafiq said the management has strengthened efforts to speed up loan recovery in a bid to bring down default loan below 20 percent by the end of the year.