Janata now faces closure in UAE four years after Sonali lost its UK licence

Infographic: TBS

The overseas presence of Bangladesh's state-owned banks has suffered another setback, as four branches of Janata Bank in the United Arab Emirates face possible closure – four years after Sonali Bank's licence was cancelled in the United Kingdom.

The UAE central bank imposed restrictions on Janata Bank's operations over a capital shortfall and ordered the bank to prepare for a wind-down of its existing operations unless the deficit is addressed.

Under Central Bank of the UAE (CBUAE) regulations, Janata Bank's UAE operations are required to maintain paid-up capital of 400 million dirhams. The current paid-up capital is 100 million dirhams, leaving a shortfall of 300 million dirhams, or nearly Tk1,000 crore.

The UAE central bank has restricted withdrawals from the Janata Bank branches' accounts held with it, stopped them from opening new customer accounts and instructed them to prepare to gradually wind down existing operations.

According to Janata Bank officials, the measures were taken because the bank failed to maintain the minimum paid-up capital required under UAE banking regulations and due to concerns over the bank's overall financial condition in Bangladesh.

On 8 July, CBUAE Assistant Governor Ahmed Saeed Al Qamzi wrote to Janata Bank's UAE Chief Executive Officer Mohammad Kamruzzaman, directing him to inform the bank's board of directors and quickly communicate its decision.

The UAE central bank also informed Janata Bank Managing Director Mazibur Rahman and Bangladesh Bank's Off-site Supervision Department of its decision on 9 July.

The bank, in a board meeting on 14 July, decided that an emergency meeting involving the Financial Institutions Division, the Bangladesh Bank, the Ministry of Foreign Affairs and the bank's chairman and managing director was needed to address the situation.

Accordingly, the MD wrote to the secretary of the Financial Institutions Division on the same day requesting such a meeting.

Speaking to TBS on Saturday, Mazibur said that since 2016, all profits earned by the UAE branches have been retained there and added to paid-up capital – from 75 million dirhams to 100 million dirhams. 

He said the bank had proposed increasing its paid-up capital in phases over three years.

Mazibur said that if the UAE central bank does not accept the proposal, they will try to increase the paid-up capital with government assistance.

Concerns over Janata's capital position

In its letter, the CBUAE said the regulatory measures had been taken because of concerns over Janata Bank's capital position and its failure to comply with minimum capital requirements.

It said withdrawals from the bank's accounts with the UAE central bank would be approved only in limited amounts to meet depositors' claims. It also instructed the bank to stop accepting new customers and focus on settling existing liabilities and business.

In a separate letter sent to the bank's head office on 9 July, UAE CEO Kamruzzaman sought guidance from the board on the next course of action.

Responding to concerns raised by the UAE central bank over Janata Bank's financial condition, Mazibur cited the country's banking sector's broader challenges, with more than 20% of loans nationwide classified as defaulted.

He said although around 70% of Janata Bank's loans had become defaulted, it continues to operate without relying on emergency borrowing.

In a separate letter dated 22 April, CBUAE's Qamzi pointed out the bank's audited 2024 financial statements that showed the capital of Janata's head office had also fallen below the minimum equivalent of 2 billion dirhams required under UAE regulations.

According to Bangladesh Bank data, Janata Bank's capital deficit stood at Tk52,891 crore at the end of December 2024. At the end of March this year, its provision shortfall was Tk50,131 crore, while defaulted loans totalled Tk74,996 crore, representing 73.94% of its outstanding loans.

Future of UAE branches uncertain

Janata Bank began operations in the United Arab Emirates in October 1976 with an initial paid-up capital of 12.7 million dirhams. It now operates four branches in Abu Dhabi, Dubai, Sharjah and Al Ain.

The branches primarily facilitate remittance services for Bangladeshi expatriates and provide banking services to non-resident Bangladeshis. They also handle import and export letters of credit, trade finance, guarantees, deposits and commercial lending.

According to bank documents, the UAE operations earned a profit of 32 million dirhams up to 2020, of which 25 million dirhams was added to paid-up capital.

A senior Bangladesh Bank official, speaking on condition of anonymity, said if the government does not provide the required capital, any closure of the UAE branches would have to follow the UAE central bank's regulations, taking into account the branches' paid-up capital, deposits and other liabilities.

He said such a process would also involve high costs for the bank.

Sonali Bank's trouble in UK

Sonali Bank began its UK operations in 1999 with the registration of Sonali Trade & Finance (UK) Ltd in London. In December 2001, it was renamed Sonali Bank (UK) Ltd and started operating as a full-fledged bank, providing accounts, remittance, and trade finance services to expatriate Bangladeshis and business clients.

Though initially popular, the bank soon faced a series of regulatory challenges. In 2016, the UK's Financial Conduct Authority fined it for weaknesses in anti-money laundering systems, while financial losses and irregularities also mounted.

Under increasing regulatory pressure, the UK's Prudential Regulation Authority cancelled the bank's licence in August 2022.

Following the licence loss, the entity was restructured and renamed Sonali Bangladesh (UK) Ltd on the same day, taking over the liabilities of the former company. The new entity no longer offers retail banking; instead, it focuses on trade finance, correspondent banking, and institutional transactions.

Sonali Bank later established an exchange house named Sonali Pay (UK) Limited and a non-banking financial institution named Sonali Bangladesh (UK) Limited in London. However, neither of these newly created entities is performing well, with both consistently running at a loss and requiring capital injections from Bangladesh to survive, according to Sonali Bank officials.

Performance of other banks' overseas operations

While state-owned Agrani Bank's exchange houses in Singapore and Malaysia currently play a vital role in remittance inflows, their internal governance and management have plunged into a severe crisis due to widespread financial irregularities and corruption uncovered in recent years. 

An internal audit conducted by Agrani Bank, covering the period from 1 July 2017 to 31 December 2024, revealed that the officials in charge of these two entities engaged in numerous activities that were "completely contrary to banking policies, financial discipline, and good governance" – many of which amount to direct criminal offences.

According to Bangladesh Bank's latest Financial Stability Report 2024, the combined net profit of overseas branches and exchange houses of Bangladeshi banks dropped to $5.96 million in 2024, representing a 36.56% decline from the $9.40 million recorded in 2023. 

Over the same period, the combined return on assets for these branches fell from 1.74% to 1.15%. 

The report also noted that Sonali Bank and Janata Bank, alongside the private-sector AB Bank, operate a total of seven full-fledged foreign branches across the UAE and India. Furthermore, another 21 Bangladeshi banks are providing remittance collection services overseas through 21 dedicated exchange houses.