Janata Bank hides the loss of Tk377cr through a facade

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The worst performing public lender, Janata Bank, concealed an investment loss of Tk 377 crore by dressing up the financial statements to conceal the inefficiency of the business.

The bank suffered the loss from the revaluation of investments in treasury bills and bonds in the first nine months of last year due to weak cash management, but it listed the amount as operational expenses breaking the rules, according to Bangladesh Bank.

Banks must revalue their investment in treasury bills and bonds weekly based on the market price.

According to banking regulations, banks cannot present their revaluation losses on cash investments as operating expenses. They must show their profits or losses from these investments in their income accounts.

Bangladesh Bank has identified financial juggling and recently served a show cause notice on the bank for violating book entry regulations in its balance sheet.

Janata Bank also admitted in its response to the show cause notice that the amount of losses it listed as operational expenses are not actually expenses.

The bank had already sent its response twice but could not clarify its statement, a senior central bank official said, adding that authorities could impose a maximum fine of Tk 10 lakh on Janata Bank for breaching regulations.

Sensing there could be more manipulation in Janata Bank’s balance sheet, the central bank has now launched an investigation into the bank’s profit and loss account.

The Business Standard called Janata Bank chief executive Md Abdus Salam Azad on his phone several times on Sunday for his comment on the matter, but he did not respond.

With financial account manipulation, however, Janata Bank posted an interim net profit of Tk 215 crore for the period January-September 2021, according to central bank data.

The bank’s operating expenses jumped 14% in the first nine months of last year, surpassing the 6% cap set for the full year by Bangladesh Bank in a memorandum of understanding. agreement (MoU).

Bangladesh Bank served a show cause notice on Janata Bank for breaching the operating expenditure limit, but the bank could not satisfy the central bank with its explanation.

In addition, Janata Bank asked the central bank in January this year to revise the operating cost cap upwards to 9%, but the regulator abandoned the request.

In addition to investment losses on government securities, Janata Bank suffered interest losses last year as it collected deposits at higher interest rates, but earned less on credit, which also exposes its inefficiency in business operations.

Deposits with the bank increased by 22% in the first nine months of 2021, compared to the industry average of 11.41%. The bank collected high deposits despite having excess liquidity of Tk 21,300 crore.

On the other hand, loan growth at the bank was 19.29%, more than double the industry average of 9.51%.

In contrast to the strong loan growth, the bank’s loan income was lower as 84% ​​of its credits turned into forced loans.

As a result, the bank paid a lot of money to depositors but earned less money from borrowers, resulting in a loss of interest income of Tk 204 crore in January-September last year, according to the Bangladesh Bank.

Even though Janata Bank’s financial health has steadily deteriorated since 2019, the lender has maintained the positive financial indicators in the balance sheet by taking regulatory forbearance.

Despite the temporary forbearance, the bank’s capital shortfall stood at Tk 1,416 crore in the first nine months of last year. If regulatory forbearance is not taken into consideration, the real revenue shortfall would be Tk 10,655 crore, according to Bangladesh Bank data.

The bank suffered losses of Tk 12,297 crore in 2019 but posted profits of Tk 24 crore in the audited financial statements.

Despite this huge loss, the bank’s board approved an incentive bonus of Tk 112 crore, which was equivalent to the base salaries of its employees for three months.

Even though the amount of the loss widened in 2020, the bank did not stop spending to reward its employees.

In that year, the bank incurred losses of Tk 5,054 crore even after taking a provision carryforward. Had he not been allowed to take a provision carry forward, the loss would have been Tk 12,567 crore, according to Bangladesh Bank data.

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