Cenbank questions Tk408cr shady loan deals of Shahjalal Bank

Shahjalal Islami Bank Limited finds itself in a quagmire after taking over a loan of the contracting company Dhaly Construction Ltd from another bank and granting new loans worth hundreds of crores of taka to the same company violating banking regulations.

Following multiple loan renewals, the company currently owes the Dhanmondi branch of the bank Tk408 crore, which Bangladesh Bank officials said will be highly challenging for the bank to recover.

A report by the central bank highlighted that Shahjalal Islami Bank took over the loan without verifying the customer's status and simultaneously made additional investments.

The bank failed to provide any information regarding Dhaly Construction's investment-related work orders, project work progress, and verification of equity, among other details concerning the takeover of the original loan from the Dilkusha branch of Trust Bank, the report said.

It also revealed that the bank's loan investment violated the directives of its board of directors.

Furthermore, the report found a lack of information regarding the deposit of the bills of the work orders related to the loan.

A senior official from the central bank said on condition of anonymity that the company has already collected the bills of the work orders, which served as the basis for the loan, through other banks. As a result, it will be difficult for the bank to recover the amount, he said.

He further said the loan has been renewed over four times.

Loan takeover and new loans

In 2013, Dhaly Construction, a company involved in public and private construction projects, obtained funded and non-funded credit facilities totalling Tk129 crore from the Dilkusha branch of Trust Bank.

By the end of 2015, the debt had increased to Tk156 crore.

The company had mortgaged collateral consisting of 721 kathas of land and a building spanning over 37,000 square feet as security against the loan.

In November 2015, the company applied to the Shahjalal Islami Bank's Dhanmondi branch for a takeover of the loan previously held by Trust Bank.

Simultaneously, it proposed to mortgage the collateral with a redemption clause.

On 28 December 2015, Shahjalal Islami Bank took over the loan of Tk118 crore from Trust Bank. Simultaneously, the bank granted Dhaly Construction fresh Tk188 crore as funded loans and Tk70 crore as non-funded loans.

Furthermore, on 27 August 2017, the bank issued an additional amount of Tk115 crore (comprising Tk85 crore in funded loans and Tk30 crore in non-funded loans) for Dhaly Construction.

Besides, the bank issued forced loans due to Dhaly Construction's failure to fulfil payment guarantee liabilities for several companies.

A senior official of the Bangladesh Bank said not all the loans granted against the work orders of the company have been fully disbursed.

As of April 2023, the bank disbursed around Tk408 crore, including approximately Tk350 crore funded and Tk57 crore non-funded loans, he added.

When contacted, Mosleh Uddin Ahmed, managing director of Shahjalal Islami Bank, told The Business Standard to speak to a deputy managing director of the bank.

One of the deputy managing directors of the bank, requesting anonymity, told TBS, "Dhaly Construction holds a prominent position among construction groups in the country, and our business association with them dates back to 2015." 

However, the company has encountered significant challenges stemming from the Covid-19 shutdowns, he added. "While we remain hopeful of loan recovery, it is expected to require additional time."

In response to inquiries regarding the company's cashing of the bills of work orders through other banks, the official explained that Dhaly Construction pursued this course of action due to their immediate financial needs.

"They believed that if they submitted the bills to our bank, the funds would be deducted to repay their loan," he said.

However, when questioned about the violation of the bank's board of directors' loan disbursement policy or the specific loan amounts granted against each work order, the deputy managing director refrained from providing any comment or information.

Talking to TBS, Rafiq Uddin, the chairman of Dhaly Construction, said the company has implemented major road and construction projects, including multiple university buildings, in the country.  

However, it has faced challenges due to the suspension of work during the Covid pandemic and the escalating prices of construction materials, resulting in exceeding of budget for certain projects.

When asked about the repayment of the loan from Shahjalal Islami Bank, he said, "New construction projects will be undertaken and the loans will be repaid. The business relationship with our bank will also continue."

Adviser of Dhaly Construction MM Mizanur Rahman said there were a few errors in the documents; however, he assured that these issues would be resolved promptly.

Regarding the loan repayment, he stated that the company possesses certain assets that can be sold to settle the outstanding amounts. Furthermore, the company is currently engaged in a number of ongoing construction projects, which will generate sufficient funds to repay the loan.

The central bank report

The central bank report reveals that in the loan sanction letter from the bank's board of directors, dated 28 December 2015, Dhaly Construction was instructed to provide a collateral equivalent to the funded investment limit for new debt investments.

However, despite the requirement to maintain 100% security against the Tk188 crore funded loan, collateral worth only Tk90 crore (land and building) was accepted. Moreover, the central bank report revealed that the board was not informed about the investment being made with reduced collateral.

The report highlights that the bank failed to provide any information to the central bank's inspection team regarding the amount of money invested against specific work orders and the number of bills received in relation to those work orders.

During the approval process for the funded investment of Tk188 crore and non-funded investment of Tk70 crore, the board of directors specified that a satisfactory legal opinion must be obtained prior to accepting the mortgage of 721 kathas of land.

However, the bank did not take into consideration the legal opinion in issuing the loan.

According to the report, the bank's investment became riskier as no collateral was accepted for the new loans.

The central bank said the officials of the respective departments within the branch and head office of the bank, as well as the then managing director and board of directors, cannot avoid responsibility for the irregularities.