Introduction to Premier Bank’s Financial Crisis
Premier Bank, a third-generation bank in Bangladesh, has been facing a severe financial crisis. The bank’s bad loans have surged nearly fivefold within just a year, resulting in a significant decline in its balance sheet. This has led to a loss of public trust and a decline in deposits.
The Rise in Bad Loans
The bank’s defaulted loans climbed to 42 percent, or Tk 13,959 crore, at the end of September last year, according to Bangladesh Bank (BB) data. This is a significant increase from the 10 percent ratio in the same month of 2024 and below 5 percent a year earlier. The jump in bad loans has forced the commercial lender to make heavy provisions, but it has failed to meet the full regulatory requirement, leaving a provision shortfall of Tk 10,048 crore.
Impact on Depositors and Financial Performance
The weakening financial position of the bank has led to a decline in deposits. Depositors have responded to the bank’s financial woes by withdrawing funds, resulting in a net loss of Tk 677 crore in the July-September quarter last year. The bank’s loan portfolio was heavily concentrated among a small group of large borrowers, with 24 clients accounting for a significant chunk of its funds. Several of these borrowers have since slipped into default.
Top Borrowers and Defaults
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. The bank’s officials have stated that loan recoveries slowed down after the August uprising and political alignments shifted, leading to an increase in defaults.
Regulatory Intervention and New Management
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 the operations of the bank and has stated that the weak financial condition was largely the result of accumulated problems from previous years.
Past Irregularities and Investigations
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.
Current Developments and Future Plans
A forensic audit is currently underway at the bank, and the managing director has been sent on leave. The bank is seeking a deferral facility from the BB to meet provision obligations and is working to stabilize its operations. The chairman has stated that the bank will seek to reschedule loans and reduce non-performing loans.
Conclusion
Premier Bank’s financial crisis is a result of a combination of factors, including a surge in bad loans, poor management, and regulatory irregularities. The bank’s new management is working to address these issues and stabilize its operations. However, the road to recovery will be long and challenging, and it remains to be seen whether the bank can regain the trust of its depositors and return to profitability. The bank’s experience serves as a cautionary tale for the importance of sound management, regulatory compliance, and risk management in the banking sector.
