AB Bank’s Hidden Bad Loans Push NPLs to 84%

AB Bank is facing a severe financial crisis, with nearly 84% of its total loans now classified as non-performing loans (NPLs), following the revelation of 
previously undisclosed bad loans. The bank's latest quarterly statement, covering the period ending in September, shows that out of its total outstanding loans of Tk 35,982 crore, Tk 30,138 crore is now categorised as NPLs, indicating an alarming level of financial distress.

The rise in bad loans from Tk 10,115 crore in September 2024 to Tk 30,138 crore within just a year highlights the deepening crisis. The previously undisclosed bad loans, amounting to Tk 20,023 crore, have now been uncovered during a forensic audit, which was ordered by the government's Banking Reform Task Force. A foreign auditor has been appointed to conduct the audit, and Bangladesh Bank (BB) is expected to receive the findings soon.

Causes of the Crisis

According to sources familiar with the bank's operations, AB Bank has long concealed the extent of its stressed assets. Irregular management practices, misuse of loan facilities, and a failure to recover large loans contributed to the situation. For years, the bank used loan deferrals from Bangladesh Bank—temporary waivers that allowed troubled banks to delay classifying loans as defaults—thus presenting a healthier financial outlook than the reality.

The scale of the problem has become clearer as the bank’s key financial indicators have deteriorated. To maintain operations amidst growing pressure from deposit withdrawals, AB Bank has requested an additional Tk 2,000 crore in liquidity support from Bangladesh Bank.

Management and Legal Troubles

In the wake of the crisis, AB Bank has seen changes in its top management. On November 19, Managing Director and CEO Syed Mizanur Rahman resigned, citing personal reasons, and is set to join Meghna Bank. Rahman, who joined AB Bank in May 2024, explained that the bank had previously reclassified mortgaged properties from defaulting borrowers as non-banking assets to temporarily reduce its bad loan ratio. However, legal complications have led to the reclassification of these assets as NPLs, pushing the figures higher.

AB Bank has also faced a series of scandals over the years, including a high-profile money laundering case in 2016, which saw nearly Tk 165 crore transferred abroad under the guise of investment. The bank’s troubles can be traced back at least eight years, with significant political and legal controversies surrounding its management.

Financial Losses and Capital Shortfall

AB Bank reported a net loss of Tk 3,113 crore in the first nine months of 2024, a sharp contrast to the Tk 1.58 crore profit it made in the same period the previous year. The bank also faces a capital shortfall of Tk 4,298 crore, signalling that its financial position has become unsustainable. With a net loss of Tk 1,917 crore at the end of 2024, AB Bank is struggling to maintain the minimum capital requirements to operate.

A Long-standing Issue

AB Bank’s problems are not new. Since its establishment in 1981 as the country’s first private commercial bank, the institution has faced several controversies, including the money laundering scandal in 2016. During this period, the bank was controlled by the family of M Morshed Khan, a former BNP cabinet member. Although some of the key figures involved in the scandal resigned in 2017, the bank has continued to struggle, with its financial condition remaining unstable.

AB Bank's financial recovery remains uncertain as it continues to face legal proceedings over defaulted loans from several large corporate clients, including Beximco, Sikder, and Orion. The bank's ongoing legal troubles, combined with its spiralling financial losses, suggest that it faces an uphill battle to regain stability.