Janata Bank hides Tk377cr loss through window dressing

The worst-performing state-owned lender, Janata Bank, has concealed Tk377 crore investment loss through window dressing of financial statements to cover up business inefficiency.

The bank incurred the loss from revaluation of investment in treasury bills and bonds in the first nine months of last year owing to weak treasury management, but it showed the amount as operational expense violating rules, according to the Bangladesh Bank.

Banks have to revalue their investment in treasury bills and bonds every week based on the market price.

According to the banking regulations, banks cannot show their revaluation losses on treasury investments as operating expenses. They have to show their profits or losses from such investments in their income accounts.

The Bangladesh Bank identified the financial jugglery and served a show cause notice on the bank recently for violating the accounting entry regulation in its balance sheet.

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

The bank had already sent its reply twice but could not clarify its statement, said a senior official of the central bank, adding the authorities could impose a maximum of Tk10 lakh in fines on Janata bank for breaching the regulations.

Smelling that there may be more manipulations in Janata Bank's balance sheet, the central bank has now initiated an inquiry into the bank's profit and loss account.

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

With the financial account manipulation, however, Janata Bank has shown a provisional net profit of Tk215 crore for the January-September period of 2021, central bank data show.

The operating expense of the bank surged by 14% in the first nine months last year, exceeding the 6% ceiling, set for the entire year by the Bangladesh Bank in a memorandum of understanding (MoU).

The Bangladesh Bank served show cause notice on Janata Bank for crossing the operating expense ceiling but the bank could not satisfy the central bank with its explanation.

Moreover, Janata Bank in January this year requested the central bank to revise up the operating cost limit to 9% but the regulator scrapped the application.

Besides the losses from investment on government securities, Janata Bank last year incurred losses from interest earning as it collected deposits at higher interest rates but earned less from credit, which also exposes its inefficiency in business operation.

Deposits with the bank grew by 22% in the first nine months of 2021 when the industry average was 11.41%. The bank collected high deposits despite having Tk21,300 crore in excess liquidity.

On the other hand, lending growth at the bank was 19.29%, which was more than twice the industry average of 9.51%.

In contrast to the high growth in lending, the bank's income from loans was less because 84% of its credit turned into forced loans.

As a result, the bank paid high to depositors but earned less from borrowers, causing its interest income loss to stand at Tk204 crore in January-September last year, according to the Bangladesh Bank.

Even though the financial health of Janata Bank has been deteriorating continuously since 2019, the lender kept the financial indicators positive in the balance sheet by taking regulatory forbearance.

In spite of provisional forbearance, the capital shortfall of the bank stood at Tk1,416 crore in the first nine months of last year. If regulatory forbearance is not taken into consideration, the real shortfall would be Tk10,655 crore, according to the Bangladesh Bank data.

The bank incurred Tk12,297 crore in losses in 2019 but showed profits of Tk24 crore in the audited financial statement.

Despite this huge loss, the board of the bank approved an incentive bonus of Tk112 crore, which was equivalent to the basic salaries of its employees for three months.

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

That year, the bank incurred losses of Tk5,054 crore even after taking provision deferral. If it was not allowed to take provision deferral, the loss would have been Tk12,567 crore, according to the Bangladesh Bank data.