NRB Bank deliberately loses Tk 103cr to favour stock gamblers

NRB Bank has incurred a loss of Tk 103 crore as it intentionally became involved in unethical trading practices in the stock market to favour gamblers, which weakened the financial health of the lender and put depositors’ money at risk.

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

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

He blamed some employees of the bank for the irregularities.

The illegal trading activity has had an adverse impact on the depositors’ money as the bank misused their funds in the name of investment in the stock market, said officials of the Bangladesh Bank.

“Almost all shares were traded [buy and sell] at negotiated prices in bulk quantity and on a deal basis during the period,” the audit report said.

NRB Bank bought shares at comparatively higher prices and sold them at lower prices than the average market price with a view to giving a chance to the gamblers to make a profit, it said.

For instance, the lender bought the shares of Paramount Insurance at a higher rate though there was an opportunity for it to purchase them at 20-22 per cent lower rates.

The lender invested around 58 per cent of its investible fund in Pioneer insurance, breaching laws.

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

A bank can’t invest more than 5 per cent of the total capital, share premium, and retained earnings in a single stock as per the Banking Companies Act 1991.

The bank also bought the shares of Paramount Insurance Ltd in the similar fashion.

On January 12, the bank started to purchase 100,000 shares of Paramount Insurance at Tk 144.30 apiece. The rate was the highest on the day and 22.17 per cent higher than a day before, the report said.

The share started sliding the following day and slipped to Tk 122.80 on January 17. But NRB Bank did not purchase any shares at that time.

However, when the share started to go up on January 20, the bank purchased 100,000 shares at Tk 148.79. The rate was 27.16 per cent higher than the price of January 17.

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

NRB Bank repeated the same purchase programme in case of GBB Power Company, SK Thread and Industries and so on.

The private lender also violated rules while investing funds in the capital market.

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

The audit team unearthed that the limit was surpassed by Tk 6 crore, a punishable offence.

NRB Bank also flouted its own rules.

The bank has decided that a maximum investment in a particular industry would not be more than 30 per cent of the total fund. However, it injected 62.5 per cent of the total investment in the insurance sector.

On September 16, the central bank fined the lender Tk 49.50 lakh for breaching securities rules by buying the shares beyond the investment ceiling.

“When all analysts were saying that the insurance sector had become overvalued, the bank has invested in the sector. This is clear that the bank is trying to provide benefits to others,” said Prof Abu Ahmed, a stock market analyst.

“It is part of a manipulation.”

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

“The central bank has fined the bank. But the people responsible for the losses of the depositors’ money have not faced the music.”

A BB official said that the lender had misused the depositors’ funds by getting involved in unethical trading practices. So, the central bank had taken the punitive measure.

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

The audit report chiefly blamed Hasan, who joined the bank at the beginning of 2021, for the scam.

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

The audit report, however, showed that the anomalies took place in the six months to June.

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

The audit report said after reviewing all the activities of the investment banking unit, it could be easily realised that investment in shares was made without maintaining the bank’s internal and the regulator’s policies.

Though the investment committee worked, it was highly dependable on Kamrul Hasan, it said.

Hasan was not available for comments.

He told a meeting of the investment committee of the bank that he used a group of buyers and sellers to maximise profits, the audit report said.

Talking to The Daily Star, a good number of bankers from other lenders say that there was no scope to put the blame on some officials to this end.

The top management usually takes the decision on the investment in the capital market, they said.

There is a lack of corporate governance at a bank if only the CFO or any other junior officials decide to invest in the stock market, sidestepping the high-ups, they said.

The overall financial health of NRB Bank worsened in recent months: its default loans stood at Tk 287 crore as of June, up 93 per cent year-on-year, according to data from the BB.

Prof Abu Ahmed urged the senior figures of banks to monitor regularly how the investment was made in the stock market because depositors’ money were at stake.