case study of failure the Farmers Bank Bangladesh

Course Name: Accounting for Managerial Control
Course Code: 7204
A CASE STUDY ON THE FARMERS BANK LIMITED:
DOOMED FROM DAY ONE
Submitted To:
Professor Md. Maksudur R. Sarker, FCMA
Department of Accounting & Information Systems
University of Dhaka
Submitted By:
Group No. 12: The Accountants
Id No’s: 21-221(Leader), 21-088, 21-073, 21-198, 21-016
Section: B
Batch: 21st
, MBA
Session: 2018-2019
Date of Submission: 7th
November, 2019.
Department of Accounting & Information Systems
University of Dhaka.

Letter of Transmittal
7th
November, 2019
Md. Maksudur R. Sarker, FCMA
Professor
Department of Accounting & Information Systems,
University of Dhaka.
Subject: Submission of the developed case study on “THE FARMERS BANK LIMITED:
DOOMED FROM DAY ONE”.
Honorable Sir,
It has been a great pleasure for us to develop a case study on “THE FARMERS BANK LIMITED:
DOOMED FROM DAY ONE” that you permitted us to prepare.
It has been a great experience for us to develop such type of case study and gather some valuable
knowledge on why the Farmers Bank Ltd. collapsed within 1-2 years from its coming into
existence. We tried our level best to develop the case in a realistic way.
We have tried to use the most relevant information and analysis for this context to develop this
case. We will feel very honored if the case serves its purposes in the future.
Sincerely Yours,
Group No. 12: The Accountants
Id No’s: 21-221(Leader), 21-088, 21-073, 21-198, 21-016
Batch: 21st
, MBA
Section: B.

Supervisors Certificate
This is to certify that the developed case study on “THE FARMERS BANK LIMITED: DOOMED
FROM DAY ONE” is an authentic case study developed by group “The Accountants” is a partial
fulfillment of the requirement of the course “Accounting for Managerial Control (7204)” from the
Department of Accounting & Information systems, University of Dhaka.
The case study has been carried out and developed under my guidance and fulfills the authenticity
criteria successfully.
Signature of the Course Teacher……………..
Date:….………………

TABLE OF CONTENTS
1. EXECUTIVE SUMMARY………………………………………………….1
2. BACKGROUND OF THE BANK………………………………………….2
2.1 BASIC BACKGROUND…………………………………………………………………2
2.2 VISION AND MISSION STATEMENT…………………………………………………2
2.3 DISCLOSURE PROCEDURES…………………………………………………..………3
2.4 RECENT CHANGES IN MANAGEMENT……………………………..……………….3
2.5 STRATEGIC OBJECTIVES…………………………...…………………………………4
3. STATEMENT OF THE PROBLEMS WITH EXAMPLES………………...5
3.1 MAIN PROBLEMS AND OUR FOCUS…………………………………………………5
3.2 OVERVIEW OF LARGE LOAN DEFAULTS…………………………………………..5
3.3 DESCIPTION OF PROBLEMS WITH EXAMPLES…….……...………………………6
4. MARKET ANALYSIS WITH EXAMPLES……………………….……….9
4.1 PURPOSE OF CREATING THE FARMERS BANK LTD………….…………………..9
4.2 OVERALL BANKING INDUSTRY FROM 2010-2018…………….….………………10
4.3 STAKEHOLDERS AND COMPETITORS OF THE BANK……...…………..… ……12
4.4 DEPOSIT MIX OF THE FARMERS BANK LTD…………………………….………..13
4.5 CREDIT PORTFOLIO OF THE BANK…………………………………….…….…….14
4.6 TOTAL LOAN ALLOTMENT………………………………………………………….15
5. RISK ANALYSIS WITH EXAMPLES…….……………………………..16
5.1 BASIC RISK FACTORS ANALYSIS………………………….……………………….16
5.1.1 CREDIT RISKS………………………………………………………….………17
5.1.2 MARKET RISKS…………………………………………………………….….20
5.1.3 OPERATIONAL RISKS………………………………………..……………….21

TABLE OF CONTENTS
5.2 CAMEL RATING ANALYSIS………………………………………………………….21
5.2.1 CAPITAL ADEQUACY…………………………………….…………………..21
5.2.2 ASSET QUALITY………………………………………………….……………23
5.2.3 MANAGEMENT EFFICIENCY……………………………………..………….24
5.2.4 EARNING ABILITY …………………………………………………..………..25
5.2.5 LIQUIDITY MANAGEMENT………………………………………………….26
5.3 COMPOSITE RARTING FROM 2013-2017………………………...…………………27
6. IMPACT OF THE PROBLEMS WITH EXAMPLES……………...……..28
6.1 MAIN IMPACTS………………………………………………………………………..28
6.2 POOR CORPORATE GOVERNANCE…………………………………………...……29
6.3 ROLE OF REGULATORY BODIES………………………………………………..….31
7. POSSIBLE FUTURE DISCUSSIONS……………………….……………32
8. REFERENCES……………………………………………………..………33

1. EXECUTIVE SUMMARY
1
In this case study, the detailed background of the Farmers Bank Limited which is now renamed as
the Padma Bank Limited is given along with its identified problems. ‘Doomed from day one’ is
used as a figurative term in this case because it is generally considered a bank will be in operations
for many years to come but this bank faced crisis within second year of its running. Due to various
problems such as: liquidity crisis, nepotism in employment of executives, corruption, huge
defaulted amounts of loans etc. the bank came on the brink of bankruptcy. Our main focus is on
the loan defaults and almost bankruptcy situation of the Farmer’s Bank in this case even though
the bank was created for good reasons such as aiding the poor farmers and improve the overall
agriculture sector by giving out loans. We have analyzed the problems through Market Analysis
and Risk analysis. Market analysis found that even though the bank had an enormous potential in
the banking industry, due to some politically biased decisions and undue influence from the
Executive members of the bank (specially from the former chairman Muhiuddin Khan Alamgir)
the bank lost its market potentialities. In the Risk analysis which includes both credit analysis and
CAMEL rating analysis, we found that the bank was opened with questionable persons and it was
operated only for those persons interests. Most of the loans were given to fake companies which
became unclassified and unrecoverable. The banks risk soared within 2 to 3 years and the bank
faced liquidity crisis which almost led to its bankruptcy. The financial statements from 2013-2018
were analyzed but they appeared to be forged and untrustworthy. After analyzing the problems
though market and risk factors we have given some impacts the bank faced for the given problems
in the case. What roles did Bangladesh Bank and BSEC played during the banks failure is also
presented here. Finally, we present some issues/questions for possible future discussions in the end
of this case study along with the references from where the data were collected. Ample examples
have been given throughout the case to support our views.

2. BACKGROUND OF THE BANK
2
2.1 BASIC BACKGROUND
The Farmers Bank Limited started as a private commercial bank headquartered in Gulshan-1,
Dhaka, Bangladesh. The bank was established in 2013. The fourth-generation bank commenced
its banking operation on June 3, 2013. The vision of the bank is to provide dynamic, progressive,
excellent financial institution by providing premium products and services to the customers and
supporters. There are 20 members in the board of directors in which Muhiuddin Khan Alamgir
was the founding chairman of the board of directors and chairman of the executive committee is
Mahabubul Haque Chisty. The managing director of the bank was Choudhury Mostaq Ahmed.
The bank started with the authorized capital of BDT 1500 crore and paid up capital was 401.61
crore. The bank started with 10 branches and 198 employees throughout the branches. And First
AGM was held on 21 September, 2014.
The bank launched a number of financial products and services since its inception including
monthly saving scheme, monthly income scheme, double benefit scheme, consumer credit scheme,
education loan, women entrepreneurship loan, home loan, lease finance etc. In first year, the bank
earns operating profit of 5.46 crore taka and net income stood 3.82 crore taka.
2.2 VISION AND MISSION STATEMENT
Vision: To emerge as a dynamic, excellent, progressive financial institution of the country by
providing premium products and services to the customers and supporting the attainment of the
nation goal for socio economic development.
Mission: To stimulate economic growth of the country through consistent expansion by providing
diversified products and services to all clients and to create a sound vibrant financial system with
effective, efficient and transparent operations and socially acceptable rate of profit for the
stakeholders.

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2.3 DISCLOSURE PROCEDURES
The bank provides disclosures through capital accord of Basel ii. For this the qualitative
disclosures are:
(a) the revised risk-based capital adequacy (RBCA) framework which is called Basel ii guidelines
issued by BB in Dec-2010 duly applies to the Farmers bank Limited.
(b) The Farmers Bank Limited prepared its RBCA on “solo basis” refers to all position of the bank
including offshore banking units.
(c) No incidence occurs which may cause for imposing any regulatory restrictions or impediments
on transfer of funds. Quantitative disclosures
(d) No capital deficiency in solo assessments. The auditor of the bank was Hoda vasi Chowdhury
& Co shows that the bank showed statements are true and fair view that is the unqualified audit
report.
2.4 RECENT CHANGES IN MANAGEMENT
By an order on 29 January 2019 Bangladesh Bank has changed the name of The Farmers Bank
Limited to Padma Bank Limited. Bangladesh Bank has renamed The Farmers Bank Limited as
Padma Bank Limited following a plea by the authorities of the scam-hit private bank. The fourth-
generation bank initiated the move to change its name with a view to regaining public confidence
for survival following loan scams and changes in its management and board of directors.
The new management, which took charge of The Farmers Bank after the forced resignation of its
previous board’s chairman Muhiuddin Khan Alamgir and removal of managing director AKM
Shamim, executive board chairman Mahabubul Haque Chisty.
The central bank appointed the banks new chairman as Chowdhury Nafeez Sarafat on selection
basis who was previously appointed as chairman of RACE management PCL and Argus credit
rating services limited and managing director Ehsan Khasru basis to revamp the image of the bank
and to make the bank’s financial health better. The management changed the name of the bank to

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Padma Bank Limited and the new management had taken a set of plans, including rebranding
program and launching ethical banking.
2.5 STRATEGIC OBJECTIVES
Padma Bank is aiming to focus on following important areas where special emphasis will be given
through their journey ahead.
Excellent customer experience: Padma Bank is committed to create environment where each
interaction with their customers would turn enjoyable. Gaps in service areas will be identified and
skills of their employees will be developed and they will offer technology-based solutions and
service platforms for their customers.
Financial growth: Financial needs of their customers will be diligently analyzed and appropriate
products will be offered to meet their requirements. They are committed to manage and help our
customer to grow their wealth and on the same note, we will ensure to grow and maintain a good
portfolio of the bank.
Product growth & development: Their market research will continue to find out gaps in our offers
for our customers. Product performance will be reviewed and lifecycles of products will be
analyzed to determine launching of new products or repackaging of existing products.
People and culture: Employee engagements in various initiatives will be enhanced with the view
to align them with Bank’s vision and strategy. Performance culture will be driven strongly and a
good career path will be drawn for good performers. There will be ‘Zero’ tolerance over any
violation to code of conducts that the bank has announced and established.

3. STATEMENT OF THE PROBLEMS WITH EXAMPLES
5
3.1 MAIN PROBLEMS AND OUR FOCUS
I. In case of sanctioning loan, it did not follow the rules & regulations of Bangladesh bank.
II. The loan provided by Farmer’s bank amount to 3070crore up to September 2018 which
was totally defaulted.
III. There was nepotism among the board of directors. Most of the employees are recruited
from the Patuakhali. So that’s why their employees were unskilled.
IV. They opened excessive branches in the whole districts without necessity.
V. All of the branches in Dhaka were rented at a higher price in compared to the standard rent.
All of the rented branches were owned by its board of directors.
VI. Due to liquidity crisis, it failed to gain public confidence.
Our main focus is on the loan defaults and bankruptcy of the Farmer’s Bank. Since it was hit by
massive corruption and irregularities in a year ago much of which is blamed on its former
chairman. The bank was never been able to turn any profit and its bad loan portfolio is continuously
swelling as more and more loans even the good ones all failing. Farmers Bank found itself in a
controversy situation when it discovered that its big chunk of loans was given without even any
application for loans or that money was disbursed to dubious companies even before loans well
approved.
3.2 OVERVIEW OF LARGE LOAN DEFAULTS
Farmers Bank could not recover any of the loans it had disbursed and ticketed them as classified.
Its first scams were unearthed in 2015 as it given TK 400 crore loans without proper documentation
and following procedures. Later in 2017 another investigation showed that it incurred amount of
500cr scams of loans in similar nature. It could not recover a single penny of its TK 4198crore
unclassified loans in April-June quarter. But of its 1521cr unclassified loans, could make a meager
recovery of TK 2cr only according to Bangladesh Bank. In the year 2018, June Farmers Bank had
29% of its loans as default. But in the latter two months that means September the figure rose up
to an astounding amount which is 58% or TK 3070cr and more than 3500cr siphoned off from
the bank according to Bangladesh Bank. Highly unusual for a bank, its deposit has been sliding.

6
In December last year, the bank had negative growth with 5% and it becoming worse this June
with the figure becoming 15%. So, it causes the day by day liquidity crisis. They ultimately the
bank failed to pay back all the deposits of its customers. So, at last it lost all of its confidence from
public. So, the bank was infected with corruption and irregularities, the government last made
force the four-state owned bank and state investment company, the investment corporation of
Bangladesh to buy TK 715crore equity of the ailing bank. Finally, the bank has again its activities
in the name of Padma Bank from 29 January 2019.
In the following their total amount granted loans and loan defaults years after years.
3.3 DESCIPTION OF PROBLEMS WITH EXAMPLES
I. In case of sanctioning loan, it did not follow the rules & regulations of Bangladesh bank.
Farmers Bank found itself in the middle of a raging controversy when it was unearthed that a big
chunk of its loans was given without even any application for loans or that money was disbursed
to dubious companies even before loans were approved. Bangladesh Bank in 2015 first discovered
that it had granted loan 400cr. without any proper documentation and following procedures.
II. The loan provided by Farmer’s bank amount to 3070cr up to September 2018 which was totally
defaulted.
Its first scams were unearthed in 2015 as it given TK 400cr. loans without proper documentation
and following procedures. Later in 2017 another investigation showed that it incurred amount of
500cr. scams of loans in similar nature. It could not recover a single penny of its TK 4198cr.
Year Total granted loans Loan defaults Percentage
2013 2790cr 367cr 13.15%
2015 3650cr 400cr 10.95%
2016 4390cr 171cr 3.9%
2017 up to June 4820cr 306.21cr 6. 35%
2017 July to December 5130cr 723cr 14.09%
2018 to June 5221cr 1521cr 29.13%

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unclassified loans in April-June quarter. But of its 1521cr. unclassified loans, could make a meager
recovery of TK 2cr. only according to Bangladesh Bank. In the year 2018, June Farmers Bank had
29% of its loans as default. But in the latter two months that means September the figure rose up
to an astounding amount which is 58% or TK 3070cr.
III. There was nepotism among the board of directors. Most of the employees are recruited from
the Patuakhali.
Muhiuddin Khan Alamgir was the founder of Farmers Bank. He is right now members of
parliament. The chairman of Farmer’s Bank executive committee was Mahabubul Haque Chisty
was very close to Muhiuddin Khan Alamgir. The chairman appointed maximum employees from
patuakhali irrespective of their qualification which made the bank structurally weaker in case of
operation.
IV. They opened excessive branches in the whole districts without necessity.
They opened many branches in the whole districts without necessary. They have more branches
regarding their operational capacity especially Dhaka region namely
❖ Farmers Bank Kazi Nazrul Islam Avenue Branch, Dhaka
❖ Farmers Bank Mirpur Branch, Dhaka
❖ Farmrs Bank Mothijheel Branch, Dhaka
❖ Farmers Bank Limited Shiddhirganj Branch, Dhaka
❖ Farmers Bank Limited Golakandail Branch, Dhaka
❖ Farmers Bank Limited Narsindi, Branch, Dhaka
❖ Farmers Bank Uttara Branch, Dhaka
Though the bank was operating through the tipping point. The Farmers Bank was infected with
irregularities and corruptions. Its loans sanctions were greater than its deposits. So, it posed
difficulty to bear the operating cost of all branches.
V. All of the branches in Dhaka were rented at a higher price in compared to the standard rent. All
of the rented branches were owned by its board of directors.

8
All of the branches hold by Farmers Bank basically in Dhaka city was owned by its board of
directors. Kazi Nazrul Avenue branch, Mirpur branch, Shiddirganj branch, Uttara branch,
Golakandail branch were possessed by its Board of Directors. They extracted higher rent from
each branch. This led the bank in bearing higher operating costs.
VI. Due to liquidity crisis, it failed to gain public confidence.
As becoming highly unusual bank, its deposit has been sliding. In December last year, the bank
had negative growth with 5%and it becoming worse this June with the figure becoming 15%. So,
it caused the day by day liquidity crisis. Ultimately the bank failed to pay back all the deposits of
its customers. So, at last it lost all of its confidence from public.

4. MARKET ANALYSIS WITH EXAMPLES
9
4.1 PURPOSE OF CREATING THE FARMERS BANK LTD.
Farmers bank limited was created for the purpose of providing banking & financial services for all
levels of customers specially to the poor and landless farmers but later it was found out that they
gave very low amount of loans to them and gave huge amount of loans to unknown and made-up
companies. Since the economic liberalization of Bangladesh after 1990’s private banking sector
played a major & influential role creating economic development of the country. This phenomenon
attracted various international banks & also helped the establishment of various domestic private
banks & other types of financial institutions. Since 2000’s banking sector was regarded as lucrative
& comparatively safe investment sector in Bangladesh. A country like Bangladesh which is
regarded by international community as attractive market also inspired many to pursue banking
business. Improvement in ICT sector also created a boom in online banking & rapid money transfer
also created great opportunity for potential entrepreneurs. Farmers bank seized that opportunity.
They offered services like retail banking, corporate banking, SME banking, Digital banking, NRB
banking, Home loan, car loan, medical loan, education loan, Agricultural tools loan, special loan
for female entrepreneurs & agent banking services. The banking industry of Bangladesh was
competitive but there were still huge untapped market segments which was attracting new entrants
in the business. Rapid use of mobile banking services also made the industry attractive. Investors
were relatively faithful on the industry to protect their investment. These factors influenced the
entry of banks like FBL to enter into the Bangladeshi banking sector. But FBL showed its
stakeholders that mismanagement of assets, corruption, misjudgment & abuse of power by
authority can destroy your vision & mission even in a favorable environment. Here we are going
to discuss the banking industry scenario of Bangladesh during the formation of FBL, FBL’s
targeted customers & stakeholders, how FBL performed on that scenario & the role major industry
influencer like Bangladesh bank & Bangladesh securities & exchange commission.

10
4.2 OVERALL BANKING INDUSTRY FROM 2010-2018
Banking is considered one of the driving forces for the development of Bangladeshi economy. The
major player of Bangladeshi economy is the RMG sector which is heavily dependent on import of
raw materials. Commercials banks are instrumental in providing necessary funds for the sector.
The growth of RMG & banking industry goes side by side in Bangladesh. Since 1990 Bangladeshi
economy is transferred from agricultural to service sector. Banking is one of the major parts of our
service sector. Banks are also providing funds to the agricultural sectors. Private Commercial
Banks (PCBs) accounted for the largest share of agricultural credit followed by Specialized Banks
(SBs), State-owned Commercial Banks (SOCBs) and Foreign Commercial Banks (FCBs)
(Bangladesh Bank Annual Reports). Between 2001-02 and 2017-18, the Bangladesh Krishi Bank's
total disbursement to the agriculture sector increased more than five times from BDT 15.63 billion

11
to BDT 82.15 billion; and its total disbursement to the crop production sub-sector increased by
about 3.6 times from BDT 8.59 billion to BDT 30.62 billion. During FY17, the SOCBs, PCBs,
FCBs and SBs provided credit of BDT 210 billion, exceeding the target of BDT 175.50 billion.
The FCBs and the PCBs exceeded their targets by about 44 per cent and 36 per cent respectively.
These opportunities attracted many banks like FBL during the early 2010’s. Trends in Banking
sector and industry cost structures since 2010 are shown in the tables.

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4.3 STAKEHOLDERS AND COMPETITIORS OF THE BANK
The major stakeholders of FBL were their targeted customers, Bangladesh bank, Tax authorities,
Bangladesh Securities & exchange commission & other financial institution in the market. FBL
was focused then on mainly on the top tier of the local corporations with huge capital needs. They
also focused on the Bengali conglomerates & companies listed at the top of the market. FBL put
special emphasize on the following customer groups
• Agriculture
• Telecommunication & Information Technology Sector
• Consumer product, healthcare & pharmaceuticals
• Fast Moving Consumer Goods (FMCGs)
• Infrastructure development: Civil construction, Housing & Real Estate development
• Foreign correspondence business
• Import/Export financing
• Transport & aviation
• Small & medium enterprises
• Logistics and Entertainment.
The best performing banks in Bangladesh for the last decade are the follows
Dutch-Bangla Bank Limited, Sonali Bank Limited, Islami Bank Bangladesh Limited, Janata Bank,
Standard Chartered Bank, HSBC Bank and Prime Bank Limited.
9 other new banks also opened in 2013 which intensified the competitions & also indicated the
attractiveness of Bangladeshi Banking sector. The main competitors of FBL would be the Private
Commercial Banks (PCBs) which were providing similar types of services. Number of PCBs was
30 at 2012. PCBs controlled 62.2% of the total banking industry’s assets & 63.6% of the total
banking deposits. So, PCBs were the major player of the sector. This huge market potential
attracted FBL to enter into the industry.

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4.4 DEPOSIT MIX OF THE FARMERS BANK LTD
FBL’s deposit product mix from 2013 to 2016 is shown below:
Particulars 2013 2014 2015 2016
Taka
in
Crore
In % Taka in
crore
In % Taka in
Crore
In % Taka in
crore
In %
Current Deposit 5.55 2.97 24.912 2 71.23 2.05 84.80 1.67
Bills Payable .27 .15 6.35 .51 19.77 .56 69.05 1.36
Short noticed
deposit
4.60 2.60 24.912 2 48.33 1.38 77.84 1.54
Savings deposit 3.51 1.88 31.02 2.49 116.02 3.33 203.23 4.01
Fixed deposit 161.69 86.56 1008.94 81 2761.82 79.31 3835.55 75.75
Scheme Deposit 9.30 4.98 124.56 10 403.75 11.60 718.19 14.18
Others 1.87 1.00 14.95 1.2 61.74 1.77 75.12 1.49
Total 186.79 100 1245.60 100 3482.66 100 5063.78 100
Deposit mix
Current deposit
Bill payable
Short noticed
deposit
Savings deposit
Fixed deposit
Scheme deposits

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4.5 CREDIT PORTFOLIO OF THE BANK
2013 2014 2015 2016
Particulars Taka
in
Crore
In % Taka
in
Crore
In % Taka in
Crore
In % Taka in
Crore
In % Total
Consumer Credit 4.86 45.38 63.39 8.3 80.22 3.11 104.33 2.36 252.8
Residential Real
Estate Financing
.4 3.73 39.72 5.2 49.09 1.11 89.21
Trade service 1.99 18.58 200.11 26.2 981.48 38.15 1645.47 37.28 2829.05
Power, gas 1.48 13.82 32.84 4.3 76.88 2.98 87.27 1.98 198.47
Other
Manufacturing
Industries
1.76 16.43 2.29 .3 19.51 .44 23.56
Agriculture 25.97 3.4 26.00 1.01 34.41 .78 86.38
RMG 38.95 5.1 71.38 2.78 123.26 2.79 233.59
Textile 46.88 1.83 51.49 1.17 98.37
Ship Building 2.95 .11 10.87 .25 13.82
SME loans 229.28 30 785.41 30.52 1244.05 28.19 2258.74
Construction 35.51 4.65 79.73 1.54 120.26 2.72 235.5
Transport, storage
& communication
32.06 1.24 52.89 1.20 84.95
Commercial Real
estate financing
102.97 4.00 189.29 4.29 292.26
Loans to
brokerage houses
12.45 .48 9.13 .21 21.58
Ship Breaking 149.43 3.39 149.43
Others .22 2.05 95.85 12.55 278.98 10.85 522.60 11.84 897.65
Total 10.71 100 763.76 100 2573.59 100 4413.38 100
0 500 1000 1500 2000 2500 3000
Consumer credit
Trade services
Other Manufacturing Industries
RMG
Ship Building
Construction
Commercial Real Estate financing
Ship Breaking
BDT in crore

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4.6 TOTAL LOAN ALLOTMENT
From these statistics we can see that how FBL allotted its funds to its customers. But the allotment
process was faulty, not properly documented & corrupted which caused most its credits classified
as bad debt. From the chart we can see that the major portion of FBL’s loans were allotted SMEs.
But that process was faulty and corrupted. Loans were not based on credibility but on personal
relation & connection. That’s why they had abnormal amount of Non -performing Loans in their
book which paved the way of their demise. FBL’s profit after tax was BDT 3.82 crore in 2013 &
in 2016 it was BDT 23.02 crores. Farmers Bank found itself in the middle of a raging controversy
when it was unearthed that a big chunk of its loans was given without even any application for
loans or that money was disbursed to dubious companies even before loans were approved. In
2018 Farmers could not recover a single penny of its Tk 4,198 crore unclassified loans in April-
June quarter. Of its Tk 1,521 crore classified loans, it could make a meagre recovery of Tk 2 crore
only, central bank data shows. In 2018 Farmers had 29 percent of its total loans as default in June.
But in September, the figure shot up to an astounding 58 percent or Tk 3,070 crore.
36%
8%
7%11%
11%
27%
To emplotess
To Government as Taxes
Depreciation
Statutory Reserve
Retained Earnings
Vat & Tax deducted at source

5. RISK ANALYSIS WITH EXAMPLES
16
5.1 BASIC RISK FACTORS ANALYSIS
The Farmers bank is the first unsuccessful bank in Bangladesh after the bankruptcy of the oriental
bank. This bank is faced much problem from the establishment. Several risk factors are caused the
bank collapse within the 3 years of establishing. Here we analysis the risk factors that forced the
bank collapsing.
• Loan default risk
• Country risk
Credit Risk
• Liquidity risk
• Capital risk
Market Risk
• Human risk
• System risk
Operational
Risk

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5.1.1 CREDIT RISKS
Credit risk is the danger of misfortune because of an account holder's non-installment of an
advance or other credit extension (either the head or premium (coupon) or both): The likelihood
that a portion of a bank's benefits, particularly its advances, will decrease in worth and maybe
become useless is known as credit chance. Since banks hold little proprietors’ capital in respect to
the total estimation of their benefits, just a generally little level of absolute advances needs to turn
terrible so as to push any bank to the edge of disappointment. Here we find the credit risks data
from 2013 to 2017 the farmers bank annual report.
Year Provision for loan losses/
Total loans
Provision for loan losses/
Total equity
2013 36.49% 12.546%
2014 26.72% 14.36%
2015 21.16% 21.96%
2016 34.95% 25.32%
2017 58.43% 29.62%
In 2013 Provision for loan losses/ Total loan = 36.49%%
In 2014 the percentage the risk is decrease.
In 2015 is also decrease. But 2016 and 2017 the provision for loan losses is dramatically increase.
If the provision for losses increase, the operating expense will increase.
In the credit risk categorize two risks: Loan defaulter amount and Country risk.

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1. Loan Defaulter risk:
The Farmers Bank is faced massive corruption and irregularities in loan sanction. The bank has
never been able to turn any profit and its bad loan portfolio is continuously swelling as more and
more loans. This Bank wound up in the center of a seething contention when it was uncovered that
a major lump of its credits was given without even any application for advances or that cash was
dispensed to questionable organizations even before advances were affirmed. Tables are given:
Farmers could not recover a single penny of its Tk 4,198 core unclassified loans in April-June
quarter. This chart also displayed that the defaulted was rapidly increasing within 4 years. The
total default loan of the bank was 57% of total loan. Now to present the Branch wise default of
this Bank.
Bank Branch Default loan or
Scam(core)
Motijheel Branch 367
Ghulshan Branch 400
Shyampur Branch 450
Patuakhali Branch 80
2013 2014 2105 2016 2017
Total loan 4320 4820 5130 5221 5310
Defaulted Loan 171 306.71 723 1521 3070
4320
4820
5130 5221 5310
171 306.71
723
1521
3070
0
1000
2000
3000
4000
5000
6000

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2. Country Risk:
Country risk is the risk that economic, social, and political conditions and will affect the current
or projected financial condition or resilience of a bank. The BB provided licenses to the nine banks
in 2013 The banks were given licenses in 2013 on political consideration. Most of the
directors and chairmen of the nine banks are directly involved in politics. The banks have
disbursed huge loans to politically influential individuals and much of these loans turned
sour. The Nine banks lists are given below:
No Name
1. Meghna Bank
2. Midland Bank
3. Modhumoti Bank
4. NRB Bank
5. NRB Commercial Bank
6. NRB Global Bank
7. South Bangla Agriculture and Commerce Bank
8 Union Bank
9 The Farmers Bank.
The performances of the new nine banks were not good. Irregularities at The Farmers Bank
and NRB Commercial Bank Limited have emerged as a systematic risk for the entire
banking sector.

20
5.1.2 MARKET RISK
Liquidity is the measure of affluent the daily operating activities. The farmers bank would fall
large liquidity crisis in 2016-17. For the loan default bank face losing capital and crisis in the
regular banking activities. The cash-strapped Farmers Bank failed to repay interbank short-term
loans of about Tk 700 crore to four banks over the past two months, a development that may further
erode depositors' confidence in the scam-hit bank.
2017 liquidity crisis
Particulars Taka(core)
Deposits 5,170
Lending 5066.39
Default loans 377.68
Its depositors who have claimed their money back could not get any from the bank. Public trust
was running low and the campaign hardly had any impact. People are not interested in depositing
money with a scam-hit bank. Highly unusual for a bank, its deposit has been sliding.
The Farmers Bank had kept the securities with the central bank to maintain its mandatory Statutory
Liquidity Requirement (SLR). But now the bank has no securities to maintain SLR and caused
huge liquidity loss.
Year Deposit growth Rate (negative)
2013 %3
2014 %5
2015 8%
2016 11%
2017 15%

21
5.1.3 OPERATIONAL RISKS
1. Human Risks:
The employees of the farmers bank were inefficient and poorly trained. The nepotism of the
directors of farmers bank was existed. The maximum employees were selected from the Patuakhali
district. MD. Ataur Rahman director of the bank was accent from the patuakhali. So, the employees
were maximum in this district.
2. System Risk:
Systematic risk is the risk inherent to the entire market or market segment. Systematic risk, also
known as “undiversifiable risk,” “volatility” or “market risk,” affects the overall market. the bank
is taking loans with high interest rates from depositors and other banks while it does not have the
capacity to repay. The Farmers Bank has created 'systematic risk' for Bangladesh's entire financial
sector in this way, the Bank and Financial Institutions Division or BFID says in a report. The bank
does not have the ability to repay its liabilities.

22
5.2 CAMEL RATING ANALYSIS
CAMEL rating is the indicator that evaluate internal performance any banking institution. The
main intention of this case is to analyze the performance of the Farmers Bank Limited for the year
of 2013, 2014, 2015, 2016, and 2017 by the CAMEL model.
Composite rating system
The procedure of rating the CAMEL system is given below through the table:
RATING COMPOSITE RATING DESCRIPTION
1 1-1.49 Strong
2 1.5-2.49 Satisfaction
3 2.5-3.49 Fair
4 3.5-4.49 Marginal
5 4.5-5 Dissatisfaction
5.2.1 Capital adequacy
Composite Rating
1 2 3 4 5
Year Ratio (Capital and
reserve/
Total risk
weighted assets)
Above
11%
8-
11%
4-8% 1-4% Below
1%
2013 15.14% Match
2014 11.95% Match
2015 11% Match
2016 12.08% Match
2017 6.75% Match

23
Above the data all collection from the annual report. From Table reflects that FBL maintains the
highest level of capital to its risk weighted assets. But 2017 its ratio abruptly was lessened. As per
Basel II, banks need to hold capital at least 10% of risk- weighted assets or 4.0 billion (Taka)
whichever is higher.
5.2.2 Asset Quality
Composite Rating
1 2 3 4 5
Year Ratio (non-
performing loan/
total loan)
below
1.5%
1.5-
3.5%
3.7-7% 7-9% Above
9%
2013 null
2014 5.60 Match
2015 8.06 Match
2016 12% Match
2017 57% Match
Assets quality refers to the overall risk attached to the various assets held by an individual or
institution. Banks most commonly determine the quality of assets by determining how many of
their assets are susceptible to financial risk and how much they need to keep as provisions against
losses. Above the chart we find the non- performing loan against the loan was increasing. That was
bad impact on the bank.

24
5.2.3 Management Efficiency
Composite Rating
1 2 3 4 5
Year Ratio (total
profit/total
employee)
above
0.5%
0.4-
0.5%
0.35-
0.39%
0.3-
0.34%
below
0.3%
2013 0.43 Match
2014 0.24 Match
2015 0.34 Match
2016 0.26 Match
2017 0.14 Match
Capacity Management aims to ensure the ability to use resources. Sound management is most
essential and an inevitable requirement for the strength and solid growth of every financial
institution. It is quite difficult to draw any conclusion regarding management efficiency based on
quantitative indicators, as characteristics of a good management are rather qualitative in nature.
Nevertheless, operating expenditure to total operating income, operating expenses to total costs,
employee productivity and interest rate spread are used to portray management soundness.

25
5.2.4 Earning Ability
Composite Rating
1 2 3 4 5
Year Ratio (total
profit/total assets)
above
1.5%
1.25-
1.5%
1.01-
1.25%
0.75-
1%
below
0.75%
2013 1.2 Match
2014 0.96 Match
2015 0.92 Match
2016 0.90 Match
2017 0.72 Match
5.2.4 Earning Ability
Composite Rating
1 2 3 4 5
Year Ratio (net
profit/Paid up
capital)
above
22%
17-
21.99%
10-
16.99%
7-
9.99%
below
6.99%
2013 17 Match
2014 14.08 Match
2015 10.80 Match
2016 8.58 Match
2017 6.55 Match

26
5.2.5 Liquidity Management
Composite Rating
1 2 3 4 5
Year Ratio (total
loan/total deposit)
above
60%
60-
65%
65-
70%
70-
80%
below
80%
2013 73 Match
2014 55 Match
2015 34 Match
2016 20 Match
2017 12 Match
Above it shows that each task is performed weakly for maintaining liquidity. Even though the
CAMEL rating shows that the bank was maintaining a good credit rating and system but in fact its
financial reports and its data were forged which were letter found by a special investigation led by
Bangladesh Bank and the Ministry of Finance. The bank did not fully disclosure it’s given amount
of loans in their annual reports which were not recoverable.

27
5.3 COMPOSITE RARTING FROM 2013-2017
CAMEL 2013 2014 2015 2016 2017
C 1 1 2 1 3
A 0 3 4 5 5
M 2 5 4 5 5
E 3 4 4 4 5
L 1 5 5 5 5
Average 1.4 3.6 3.8 3.8 4.6
Strong Marginal Marginal Marginal Dissatisfactory

6. IMPACT OF THE PROBLEMS WITH EXAMPLES
28
6.1 MAIN IMPACTS
Internal impacts
Higher management got sacked
and replaced by a new group of
managent team
The bank lost its previous name,
logo and vision which is a
dishonourable thing.
The banks operational costs are
very high now as they are trying
to recover the loans although the
possibilities are zero.
The bank lost all of its primary
share capital as the state owned
banks and ICB purchased its
shares
Due to political pressure and
devious schemes loans were
sanctioned to fraud companies
and people with no guarantee.
External impacts
The costomers and depositors
lost faith on the bank as a result
the bank lost many clients
Huge amount of public money
was lost due to loan defaulting
by the bank.
The banks deposit rates have
decliend drastically which has
hampered their investemnt
opportunities now.
Now the bank is finding it hard
to attract and win the trusts of
people even with new schemes.
Although the bank was created
for giving loans to the poor
farmers at easy terms it did not
give even 1% of loans to them.

29
6.2 POOR CORPORATE GOVERNANCE
In the developing nations, securities exchange assumes the key job in asset assembly through
money related intermediation, yet in the creating nations where effective type of financial
exchange is yet to thrive, banking division has been assuming a significant job in such manner
through moving asset from surplus unit to shortfall unit. Since autonomy the financial division in
Bangladesh has never been fit as a fiddle. In spite of the fact that activities of state possessed
business banks thrived the nation over, botch combined with exorbitant political impact confined
their due job in the economy. Lack of good corporate governance any intuitions will collapse
immediately. The farmers would not practice any corporate governance in sanctioning loan and
other operational activities. Here to discuss some risks that hindered the corporate governance in
this bank.
First, the farmers bank structures in the country was dominated by political members. In Bank
individuals are placed in positions of power largely because of their political background rather
than their capabilities. Such practices hinder the level of fairness, accountability and transparency
and much troubled in this bank.
Second, The Bank would violate the Bangladesh Bank law for loan sanctioning and loan
scheduling procedure. The Farmers Bank involving loans of around Tk 500 crore that were
sanctioned to 11 companies in violation of banking norms and procedures. The company list is
given below.
The Farmers Bank
Sanctioning loans without any application to
taking loans and not using any of that for the
purposes those were meant for.
NAR Sweaters Ltd, Advanced Development Technologies, Abeda
Memorial Hospital, Index Housing, Al-Faruque Bags, Nahar Farmers
Group, Apollo Trade International, Mollik Aquaculture Farm, Messers
Premjoy, Mac Trading and Bangladesh Development Company.

30
Except for NAR Sweaters Ltd, all these companies have become defaulters with the bank. The
bank's Motijheel branch gave loans of Tk 130 core to NAR Sweaters Ltd in different phases
between 2016 and last year though its head office rejected the firm's credit proposals. So above
this find the huge poor corporate governance in the bank.
Third, the directors of the bank are failing to operate the bank efficiently. Bank's former chairman
Muhiuddin Khan Alamgir and ex-chairman of its executive committee Mahabubul Haque Chisty
largely responsible for the scams and Alamgir and Mahiuddinl approved a major portion of the
loans, abusing their position and without taking consent from other board members, it mentioned.
Between November 18, 2013 and January 30 those year, Tk 138.82 crore was deposited with the
current accounts of Bakshiganj Jute Spinners Ltd, owned by Mahabubul’s son, wife and daughter,
at Farmers Bank’s Bakshiganj and Gulshan branches. Later, the entire amount was withdrawn in
cash.
From the above mention criteria regarding banking industry, competitors, Services, Allocation of
funds & role of external players like BB & BSEC showed that even after relatively favorable
industry, help of regulating authority like BB & Government Corruption & mismanagement will
cause damage. The FBL incident & Government’s role on that severely damaged investor &
depositors trust on the entire financial & banking sector of Bangladesh. So, by this way FBL
damaged the interest of all of their stakeholders.

31
6.3 ROLE OF REGULATORY BODIES
Bangladesh Bank is the main regulating authority in Bangladeshi financial sector. They & BSEC
play an important part in shaping the business environment of the country. Through their policies
& function they drive & influence Bangladeshi economy. They tried their best to save FBL. The
Bangladesh Bank first found scams at the Farmers Bank in 2015 as it detected that BDT 400 crore
loans were given without proper documentation and following procedures. Later, another
investigation in 2017 detected an even bigger BDT 500 crore scams of similar nature. The
irregularities were gross some of those outright fraud ranging from sanctioning loans without any
application to taking loans and not using any of that for the purposes those were meant for. The
central bank blamed Alamgir and ex-chairman of the bank's executive committee Mahabubul
Haque Chisty for the scams. The Bangladesh Bank had squarely held its former chairman
Mohiuddin Khan Alamgir, an AL lawmaker who got the ticket to run in the upcoming elections,
responsible for the scam. Alamgir resigned from the board in the face of controversy although he
denied his involvement in the scam. Neither the regulator nor the anti-corruption commission
further pursued the scam as if the mere resignation ended the matter. Farmers could not recover a
single penny of its BDT 4,198 crore unclassified loans in April-June quarter. Of its BDT 1,521
crore classified loans, it could make a meager recovery of BDT 2 crore only which was shown by
BB data. FBL had 29 percent of its total loans as default in June 2018. But in September 2018, the
figure shot up to an astounding 58 percent or BDT 3,070 crore. When FBL was sank with
corruption and irregularities, the government made a bailout attempt by forcing the four state-
owned banks and state investment company, the Investment Corporation of Bangladesh, to buy
BDT 715 crore equity of the ailing bank. But these efforts for saving FBL were failed. FBL was
offering its shares to the buyers to recover their imbalance but Bangladesh securities & exchange
commission suggested during that time that investing on FBL won’t be wise for the investors.

7. POSSIBLE FUTURE DISCUSSIONS
32
I. How incidents like FBL hamper the reputation of the entire banking sector of the country?
II. What measures the FBL could take to stop its deterioration of financial conditions even further
when they faced liquidity crisis?
III. Do a PESTEL(C) analysis of The Farmers Bank Limited to gain a better view about the bank’s
reasons for failure.
IV. What measures should be taken by the authority so that incidents like FBL can be controlled
properly?
V. What is rebranding & how The Padma Bank can regain its reputation through it?
VI. Do a SWOT analysis for the Padma Bank to find its present and future sustainability.
VII. What kind of defense mechanisms are in place by regulating authorities of Bangladesh to
prevent these incidents?
VIII. What steps the FBL can take to recover some of its classified loans?

8. REFERENCES
33
http://www.padmabankbd.com/
https://en.wikipedia.org/wiki/The_Farmers_Bank_Limited
https://www.dsebd.org/
https://lankabd.com/
https://www.crab.com.bd
http://www.newagebd.net/article/63337/farmers-bank-renamed-as-padma-bank
https://www.thedailystar.net/frontpage/news/farmers-bank-dramatic-rise-loan-default-1676695
https://www.thedailystar.net/backpage/news/several-people-involved-farmers-bank-loan-scam-
1642861
https://www.thedailystar.net/tags/farmers-bank-scam
https://www.thedailystar.net/frontpage/new-scams-hit-farmers-bank-1552612.
http://www.newagebd.net/article/51327/scam-hit-farmers-bank-to-be-renamed.
https://www.dhakatribune.com/bangladesh/corruption/2018/03/30/farmers-bank-loan-scandal-
tib-shares-depositors.
https://www.dhakatribune.com/business/banks/2019/01/03/farmers-bank-to-be-renamed-padma-
bank.
https://www.dhakatribune.com/bangladesh/corruption/2018/04/03/farmers-bank-loan-scandal-
acc-travel-ban
https://bdnews24.com/business/2019/01/30/scam-tainted-farmers-bank-is-renamed-padma-bank
http://dakpeon24.com/en/farmers-bank-loan-scam-babul-chisty-denied-bail/
http://assetsds.cdnedge.bluemix.net/city/farmers-bank-loan-scam-bangladesh-high-court-denies-
bail-chisty-1587316

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