Palli Sanchay Bank’s Tk187cr stuck at Bangladesh Commerce Bank

Highlights:

• Other banks, NBFIs owe Commerce Bank Tk1,610cr
• Commerce Bank's loans totalled Tk2,378cr in Dec 2024
• 54% of the loans were non-performing
• The bank faces Tk444cr provision shortfall, Tk1,656cr capital deficit

State-run Palli Sanchay Bank is facing difficulties in recovering Tk187 crore it had placed as fixed deposits with Bangladesh Commerce Bank Limited (BCBL), a bank formerly controlled by S Alam Group. 

The latter has failed to release the funds despite repeated encashment requests from the specialised Palli Sanchay Bank, prompting it to warn of legal action. 

Commerce Bank officials, however, acknowledged the matter and said they are currently unable to liquidate large corporate deposits as a substantial amount is owed to them by other banks and financial institutions.

Md Rafiqul Islam, head of Commerce Bank's Treasury, told The Business Standard, "We are unable to liquidate large principal amounts and corporate deposits at present, that's the reality."

Following the change of government last year, Bangladesh Bank dissolved Commerce Bank's board on 19 August 2024. But, despite appointing a new board, concerns remain over governance

In a letter sent to Commerce Bank's managing director on 28 August, Palli Sanchay Bank Managing Director Salma Banu noted that repeated requests for liquidation of the matured deposits had gone unanswered.

"Personal and telephonic communications with your institution have also failed to yield any results, reflecting gross negligence and a breach of banking etiquette and corporate culture," the letter read.

The letter had further warned that failure to repay by 15 September could trigger legal action. Copies of the letter were also sent to the finance ministry and the Bangladesh Bank governor.

As of yesterday night, Commerce Bank had yet to liquidate the funds and no updates on the legal development could be known.

Palli Sanchay Bank logo. Photo: Collected

Commerce Bank cites dues, promises response

Speaking to TBS, Rafiqul Islam said BCBL is owed over Tk1,610 crore by five banks and seven non-bank financial institutions. 

"Once the bank's financial position improves, these large deposits will be liquidated," he said, adding that the bank is continuing to handle Palli Sanchay Bank's deposits through maturity matches, paying profits and rolling over the principal.

The government and some state-owned banks hold 51% stake in the BCBL, created after the collapse of a private lender-Bangladesh Commerce and Investment Limited in 1992, amid liquidity crisis

He assured that the bank would formally respond to Palli Sanchay Bank's letter soon.

However, economists say the inability of one bank to return another's deposits raises fresh concerns about liquidity and corporate governance in Bangladesh's banking sector.

"If a bank repeatedly withholds another institution's funds and publicly admits its inability to pay, it signals instability in the sector. Failure to resolve such crises could erode trust among banks and financial institutions," said M Masrur Reaz, chairman and CEO of Policy Exchange Bangladesh.

The government and some state-owned banks hold 51% stake in the BCBL, created after the collapse of a private lender-Bangladesh Commerce and Investment Limited in 1992, amid liquidity crisis.

According to Bangladesh Bank data, as of December 2024, Commerce Bank's total loans stood at Tk2,378 crore, with Tk1,331 crore or 54% classified as non-performing. The bank also faced a provision shortfall of Tk444 crore and a capital deficit of Tk1,656 crore.

Following the change of government last year, Bangladesh Bank dissolved Commerce Bank's board on 19 August 2024. But, despite appointing a new board, concerns remain over governance.

On 31 July this year, director Mohammad Mosharraf Hossain resigned under pressure. Though subsequent Bangladesh Bank investigations recommended his reinstatement, the directive was not implemented by the bank.