6 state-owned banks asked to cancel contracts with MDs, CEOs

In a significant move as part of banking sector reforms, the government has ordered six state-owned commercial banks to cancel the remaining terms of the contracts with their managing directors and chief executive officers.

The Ministry of Finance's Financial Institutions Division has directed the chairpersons of these banks – Sonali, Janata, Agrani, Rupali, BASIC, and Bangladesh Development Bank – to terminate the contracts, according to officials of the Division.

In separate letters sent to the chairpersons of the banks, the Financial Institutions Division directed the banks to take regulatory actions concerning the cancellation of the contracts in accordance with the Bank Company Act.

This is the first time the interim government has cancelled appointments of top executives in state-owned banks since the fall of the Hasina government on 5 August.

Previously, while the governor and deputy governors of the Bangladesh Bank, as well as chairpersons of commercial banks, resigned after Hasina's ouster, the interim government did not revoke any appointments in state-owned banks.

Financial Institutions Division officials said the decision has been taken as part of the interim government's banking sector reforms. Policymakers in the interim government believe that maintaining the current managing directors will hinder effective banking sector reforms.

These CEOs and MDs were appointed through agreements with their respective bank boards, making the authority to terminate their contracts a responsibility of the banks' boards or chairpersons, said the officials.

They explained that the contracts include specific provisions for cancellation, which adhere to various conditions. Implementation will be carried out through the company secretary, which is why chairpersons have been instructed to proceed with the terminations.

Following the cancellation of the current MDs, the Financial Institutions Division will appoint new executives, they mentioned.

The government appoints MDs and CEOs of state-owned banks for three-year terms.

Afzal Karim was appointed as the managing director of Sonali Bank on 14 August 2022, while Md Abdul Jabbar took over as MD of Janata Bank on 3 May 2023.

Mohammad Jahangir was appointed MD of Rupali Bank on 28 August 2022, and Morshedul Kabir was named MD of Agrani Bank on 14 August 2022.

Besides, BASIC Bank's MD and CEO, Anisur Rahman, joined the bank on 1 April 2021. Habibur Rahman Gazi was appointed as the MD and CEO of Bangladesh Development Bank Limited in November 2022.

Corruption to secure positions

There are accusations that to secure contract renewals, the MDs of state-owned banks have been illegally providing loan facilities to influential political leaders and close associates of the previous Awami League government.

For instance, during his tenure, former MD of Janata Bank, Abdus Salam, was implicated in a scandal involving the fraudulent disbursement of nearly Tk8,000 crore to Anontex.

Despite this, he continued to grant significant loans to Beximco Group, owned by Salman F Rahman, an adviser to former prime minister Sheikh Hasina. 

Currently, Beximco's outstanding loans with Janata Bank amount to approximately Tk23,000 crore. Despite the bank's deteriorating condition due to large-scale loan fraud, Salam received a contract renewal.

State of state-owned banks

According to the Bangladesh Bank, as of June, the amount of non-performing loans (NPLs) in Sonali Bank stood at Tk13,495 crore, accounting for 14.81% of its total loans.

Janata Bank reported NPLs of Tk48,000 crore, representing 52% of its loan portfolio.

Agrani Bank's NPLs amounted to Tk21,325 crore, or 30.59% of its loans, while Rupali Bank had Tk10,463 crore in NPLs, which is 23% of its total loans.

BASIC Bank's NPLs reached Tk8,256 crore, making up a staggering 65% of its loan distribution, and Bangladesh Development Bank reported NPLs of Tk943 crore, or 43% of its total loans.

Experts believe that the actual amount of NPLs in these banks is significantly higher, as the central bank's figures do not include written off loans or those stayed by court orders.

Since the new interim government took office, the chairmen of Sonali and Agrani banks have resigned. On 5 September, Mohammad Muslim Chowdhury, the former Comptroller and Auditor General of Bangladesh, was appointed as the chairman of Sonali Bank, while Agrani Bank has yet to appoint a new chairman.

To enhance banking sector reforms, the Bangladesh Bank has established a task force comprising six experts in financial matters. The task force will be coordinated by central bank Governor Ahsan H Mansur and is tasked with taking various reform initiatives, including publishing a white paper.