The Agrani Bank with conditional approval of the Bangladesh Bank has recently rescheduled a substantial volume of loan belonging to Orion Pharma, a major manufacturing concern of the Orion Group, in violation of rules and regulations.
Neither Agrani nor BB should have considered the plea for loan rescheduling by the borrower concerned, for reasons of collateral deficit, default loans and single-borrower exposure beyond allowable limit.
The Offsite Supervision Division of the BB while reviewing the issue maintained that rescheduling facility, if granted, will be in gross violation of the MoU signed between the Agrani and the Bangladesh Bank. Yet the Division, finally, approved conditional rescheduling facility taking into cognisance of, what it said, public health issue.
Orion Pharma had a collateral shortfall worth Tk 5.47 billion against an outstanding loan worth 10.39 billion as of April 24, 2024, a Bangladesh Bank report reveals.
According to the report, received by The Financial Express, authorised loan amount of Orion Pharma, for importing machinery under the U-Pas LC was Tk 9.63 billion. The total liability, including bank guarantees and interest, had amounted to Tk 10.39 billion by last December.
According to the terms of the Memorandum of Understanding (MoU) between Agrani Bank and Bangladesh Bank, to reschedule these loans, full collateral must be provided.
MoU's 2023 subsection vii of section 6 states: 'The bank shall reschedule forced loan/demand loan with prior approval from the Board. For this purpose, the bank shall verify the authenticity of the reason for creating forced loan through internal audit division of head office and submitted memorandum to the board of directors' meeting along with the audit report. For rescheduling forced/demand loan for 2 (two) years and above, the bank must ensure that there is at least 100% collateral security.'
However, even though the collateral was short by Tk 5.47 billion, Agrani Bank submitted a request to the central bank for loan rescheduling. And the loan was scheduled for a six-year term.
Raw materials and consumer goods are imported through the U-Pas LC. Importers recover the cost of the imported goods by producing and marketing value-added products. This process typically takes at least 180 days. Afterwards, the importer ensures payment of the receivables to the supplier through the bank.
In Orion's case, they were supposed to have a one-year grace period and a total of six years to settle the accumulated LC liability.
However, Abu Dhabi Islamic Bank did not renew the loan after a year. During this year, Orion made no payments. Consequently, Agrani Bank created a demand (forced) loan to settle the bank's liability.
The document also notes that forced loans were created to pay the import bills financed by Abu Dhabi Islamic Bank under Orion Pharma's U-Pas LC. Of the approved loan amount of Tk 9.63 billion, the refinancing limit for machinery import under the U-Pas LC was Tk 3.01 billion.
According to the document, despite the loan becoming classified, Agrani Bank's 933rd board meeting approved the first proposal for rescheduling. This rescheduling violated the directives of the Memorandum of Understanding signed with Bangladesh Bank in 2023. As a result, Agrani Bank requested a no-objection letter from the central bank.
The MOU stipulates that the customer must provide full collateral for the rescheduled loan. Reviewing the loan portfolio it was found that by the end of April this year, the loan had amounted to Tk 10.39 billion.
According to the bank guarantee and other conditions of the U-Pas LC, there should be minimum collateral of Tk 13.63 billion. However, the actual collateral provided by the borrower was only Tk 8.16 billion, indicating a shortfall of Tk 5.47 billion.
Then again, approval for a Tk 1.32-billion demand (forced) loan for Orion Pharma had created another problem. The bank thus exceeded the single-borrower loan limit.
Following the Agrani Bank's application for a no-objection on the issue of single borrower exposure limit, the central bank asked the lender to take its own decision subject to fulfilment of certain conditions. But the borrower failed to fulfil any condition.
In such a situation, the document mentions, it is not reasonable to exempt Orion from the MoU conditions as no specific customer conditions are prescribed or imposed.
The report states that Orion Pharma, being a pharmaceutical production, marketing, and export industry, had its relief considered in view of public health. However, due to the large collateral shortfall, two conditions were imposed for meeting the shortfall.
The conditions are (1) The collateral shortfall (Tk 5.46 billion) must be gradually covered by March 31, 2025, and (2) The BB must be updated quarterly on the progress of the collateral collection.
A top official from Agrani Bank told this correspondent that the bank's board of directors, after a meeting, sent a proposal to reschedule the loan facility to Bangladesh Bank for consideration.
The central bank approved the request and rescheduled the loan.
The official explains, "Abu Dhabi Islamic Bank was pressuring us to settle the liability, so we made the payment to protect our country's reputation."
He further stated that the collateral deficit was primarily due to the interest rate and an incomplete Project Completion Report (PCR). However, the bank has now received the PCR, and there will no longer be a collateral deficit, he claimed.
"The customer was pressured by Abu Dhabi Islamic Bank to settle the Letter of Credit (LC) liability, which led to the creation of a forced loan. The customer has assured us that once the project becomes operational, they will settle the bank's liability, and the collateral will be fully covered," the official adds.
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