NRB Bank deliberately loses Tk 103cr to favor stock market players

NRB Bank suffered a loss of 103 crore Tk because it intentionally got involved in unethical business practices in the stock market to favor gamblers, which weakened the financial health of the lender and put the money depositors in danger.

The unethical trading activity took place between January and August this year when it provided illegal benefits to players by buying shares at higher prices and selling at lower prices, according to an internal audit special made by the private commercial bank this month.

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However, the actual loss was Tk 31 crore, said Mamoon Mahmood Shah, managing director of NRB Bank.

He blamed some bank employees for the irregularities.

The illegal business activity had a negative impact on depositors’ money as the bank embezzled their funds in the name of stock market investments, Bangladesh Bank officials said.

“Almost all the shares were traded [buy and sell] at prices negotiated in bulk and on the basis of an agreement during the period ”, states the audit report.

NRB Bank bought shares at comparatively higher prices and sold them at prices below the mid-market price with a view to giving players a chance to make a profit, he said.

For example, the lender bought the shares of Paramount Insurance at a higher rate, although it was possible to buy them at rates 20 to 22 percent lower.

The lender invested around 58 percent of its investment fund in Pioneer insurance, breaking the laws.

NRB Bank bought 27.36 lakh shares of the insurer worth Tk 454 crore. However, he was then forced to sell 19 lakh shares at a loss in order to comply with regulatory requirements.

A bank cannot invest more than 5 percent of the total capital, share premiums and retained earnings in a single share in accordance with the Banking Companies Act 1991.

The bank also bought the shares of Paramount Insurance Ltd in the same way.

On January 12, the bank started buying 100,000 shares of Paramount Insurance at Tk 144.30 each. The rate was the highest of the day and 22.17% higher than the day before, according to the report.

The stock started to fall the next day and slipped to 122.80 Tk on January 17th. But NRB Bank did not buy any shares at that time.

However, when the stock started to rise on January 20, the bank bought 100,000 shares at Tk 148.79. The rate was 27.16% higher than the January 17 price.

As of September 24, the bank had purchased 588,000 shares of Paramount Insurance at an average cost of Tk 120.75.

NRB Bank repeated the same purchasing program in the case of GBB Power Company, SK Thread and Industries, etc.

The private lender also broke the rules by investing funds in the capital market.

For example, the bank’s board approved a maximum investment limit of Tk 50 crore under the special purpose fund (SPF) of a central bank package.

The audit team found that the limit was exceeded by Tk 6 crore, a punishable offense.

NRB Bank has also flouted its own rules.

The bank decided that a maximum investment in a particular industry would not exceed 30 percent of the total fund. However, it injected 62.5% of the total investment in the insurance sector.

On September 16, the central bank fined the lender Tk 49.50 lakh for violating securities rules by buying the shares above the investment limit.

“When all the analysts said that the insurance industry had become overvalued, the bank invested in the sector. It is clear that the bank is trying to bring benefits to others,” said Professor Abu Ahmed, stock analyst.

“It’s part of a manipulation.”

According to the former chairman of Dhaka University’s economics department, the problem was that the bank had lost depositors’ funds.

“The central bank fined the bank. But those responsible for the depositors’ money losses did not face the music.”

A BB official said the lender abused depositors’ funds by engaging in unethical business practices. Thus, the central bank had taken the punitive measure.

NRB Bank has suspended four employees, including CFO, Md Kamrul Hasan, for their involvement in the anomalies, Mamoon Mahmood Shah said.

The audit report mainly blamed Hasan, who joined the bank in early 2021, for the scam.

When asked why senior bank officials failed to prevent the irregularities, Shah said most of the irregularities occurred in just 14 days in June.

However, the audit report showed that the anomalies occurred in the six months prior to June.

“We have taken the matter with the utmost importance. And more punitive measures will be taken against those involved,” Shah said.

The audit report indicates that after reviewing all the activities of the investment banking unit, it could be easily realized that the equity investment was made without maintaining the internal policies of the bank and the regulator.

Although the investment committee worked, it was very reliable on Kamrul Hasan, he said.

Hassan was not available for comment.

He said at a meeting of the bank’s investment committee that he used a group of buyers and sellers to maximize profits, according to the audit report.

Speaking to the Daily Star, many bankers from other lenders said there was no way to blame some officials for this.

Top management usually makes the decision to invest in the capital market, they said.

There is a lack of corporate governance in a bank if only the chief financial officer or some other junior official decides to invest in the stock market, avoiding top executives, they said.

NRB Bank’s overall financial health has deteriorated in recent months: its loans default stood at Tk 287 crore in June, up 93% year-on-year, according to BB data.

Professor Abu Ahmed urged senior bank officials to regularly monitor how the investment was made in the stock market as depositors’ money was at stake.

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