Padma Bank gets massive waiver

The Bangladesh Bank yesterday provided a fresh waiver to Padma Bank allowing it to maintain a lower amount of mandatory liquid assets in order to enable the crisis-ridden lender to improve its balance sheet and attract foreign investors.

The central bank earlier permitted the private commercial bank to maintain a 9.75 per cent statutory liquidity ratio (SLR), apart from the cash reserve ratio (CRR), against its demand and time liabilities for 2022 and 13 per cent for 2023.

Now, Padma Bank would be able to keep only 3.25 per cent of liquid assets (treasury bills and bonds) as SLR along with CRR from 2022 to 2024.

The SLR is a minimum percentage of deposits that banks have to maintain in the form of liquid cash, gold or other securities, while the CRR determines the portion of customer deposits that they must keep as a reserve with the central bank.

Padma Bank will have to raise its SLR to 6.5 per cent in 2025 and to 9.75 per cent in 2026, according to a BB notification.

As per BB rules, banks have to maintain 4 per cent of cash as CRR and 13 per cent of cash equivalent assets as SLR.

The central bank has relaxed the rule for Padma Bank to enable the scam-hit bank to attract investors and prevent it from collapsing in 2020.

The fresh relaxation comes following pleas from Padma Bank, which was earlier rescued by five state-run financial institutions -- Investment Corporation of Bangladesh, Sonali Bank, Janata Bank, Agrani Bank and Rupali Bank -- in the wake of massive financial irregularities.

The five financial institutions injected Tk 715 crore into the bank to acquire 60 per cent of its stakes.

Established in 2013 as Farmers Bank, the lender had fallen prey to scamsters. A Bangladesh Bank investigation found that more than Tk 3,500 crore was siphoned off between 2013 and 2017.

Until January, the accumulated loss of the bank stood at around Tk 805 crore and the BB allowed it to adjust the amount within the next 10 years.

Padma Bank had earlier requested the central bank to allow it to clean its balance sheet so that it could draw foreign investors.

The lender signed a memorandum of understanding with DelMorgan & Co, a US-based investment bank, in September 2021, to secure foreign investments.

The investment bank had proposed to mobilise foreign investments of $700 million for Padma Bank. However, the Bangladeshi lender would have to show its balance sheet as transparent.

Padma Bank's capital shortfall stood at Tk 540 crore as of September 2021 and default loans surged to Tk 3,586 crore, which accounted for 62.4 per cent of its outstanding loans.

"We have received a massive regulatory support from the central bank. This, coupled with other policy measures, will help us sustain and make a turnaround gradually," Tarek Reaz Khan, managing director of Padma Bank, told The Daily Star. 

Because of the capital restructuring, the accumulated loss and the provision shortfall have been converted into intangible assets, helping the bank reach break-even in 2021, he said.