Uttara Bank loses Tk62cr in Aftab Group office rent deal

Uttara Bank has allegedly incurred losses of at least Tk62 crore over 14 years by renting out office space at its Motijheel head office to five companies linked to its chairman and vice-chairman at rates far below market prices, according to a Bangladesh Bank inspection report and an investigation by A Media.

The bank reportedly charged the Aftab Group companies only Tk65 per square foot, although other tenants in the same building paid up to Tk280 per square foot. The alleged preferential arrangement has raised questions about conflicts of interest and corporate governance at the bank.

The bank's 18-storey head office building is located in Motijheel, a major commercial hub in the capital, near a metro rail station. Five entities linked to Aftab Group, including the group's head office, occupy space across four floors.

The group's Executive Chairman, Md Azharul Islam, also serves as chairman of Uttara Bank, while the bank's Vice-Chairman, Iftekharul Islam, is the group's managing director. Their positions have allegedly made it difficult for the bank's management to take action over the rental irregularities, despite repeated objections from the central bank.

According to the Bangladesh Bank inspection report, the bank's management could not introduce revised rental rates for years because of the influence of Azharul Islam and Iftekharul Islam. The rent reportedly remained unchanged since the agreement was signed in 2012, despite a contractual provision requiring a review every two years in line with prevailing market rates.

The five entities were allocated more than 8,000 square feet of floor space at Tk65 per square foot. In comparison, other tenants in the same building paid Tk158.33, Tk258.82 and Tk280 per square foot.

Based on the difference between the Aftab Group's rental rate and the highest rate charged to another tenant, the bank's monthly loss amounted to Tk17.20 lakh, or Tk2.06 crore annually. Over 14 years, the loss would amount to Tk28.89 crore.

However, Uttara Bank's internal accounts officials estimated that the loss would exceed Tk62 crore if rent had been revised every two years in line with market rates, as stipulated in the agreement. They alleged that the actual financial impact was not properly reflected in the bank's external audit reports.

The officials also said Bangladesh Bank inspection teams had raised objections several times, but the bank repeatedly sought extensions and failed to submit a full account of the rental losses to the central bank.

The Bangladesh Bank report said Uttara Bank constructed its Motijheel head office building as part of a long-term plan for future expansion. The 18-storey building officially began operations in 1989, and the bank subsequently rented out some floors that it did not need for its own operations.

On 7 February 2012, the bank rented out space to five entities linked to Azharul Islam and Iftekharul Islam. These included Aftab Fertiliser and Chemicals Ltd and the Aftab Group head office on the fifth floor, C Trade Fertiliser Ltd and Milners Pumps Ltd on the sixth floor, and Delta Life Insurance on the 10th and 11th floors. The bank authorities said Delta Life Insurance vacated the building in October.

Documents show that the rental agreement took effect on 1 July 2012 and was initially valid until 30 June 2018. It stipulated that the rent would be reviewed every two years through mutual discussions in line with prevailing market rates.

The agreement also required the tenants to pay 9% VAT on monthly rent. It provided for renewal by mutual consent, with tenants required to notify the bank at least 60 days before expiry and the bank required to communicate its decision at least 30 days before the lease ended.

However, the Bangladesh Bank inspection team found no record of any subsequent increase in rent for the floor spaces.

The inspection report described the rental arrangement with companies linked to the bank's chairman and vice-chairman as a serious irregularity and an act of negligence.

Bangladesh Bank spokesperson and Executive Director Arif Hossain Khan told the media on Tuesday that banks cannot ordinarily rent out their buildings to other entities under the law. In exceptional circumstances, a bank may temporarily rent out space with prior approval from the central bank to overcome a crisis.

He said a bank could not continue renting out such space once the situation improved. Renting out premises in violation of the rules constitutes a punishable offence under the Bank Company Act, 1991.

He added that renting out bank premises to companies linked to its chairman or vice-chairman would constitute a direct violation of the law. If a bank failed to comply with Bangladesh Bank's order to remove such tenants, the central bank would be compelled to take legal action.

Uttara Bank Managing Director Md Abul Hashem acknowledged various irregularities relating to the rental of the bank building and told the media that the bank had taken a firm stance on the matter.

"Measures have been taken to lock some spaces to ensure they are vacated. All the spaces will be vacated by December. No further concessions will be made," he said.

The Bangladesh Bank report also said its Inspection Department-1 sought an explanation from Uttara Bank on 30 June 2014 over irregularities in renting out floor space, following an inspection on 18 June that year.

Under Section 10 of the Bank Company Act, 1991, a bank cannot retain immovable property that is not required for its own use for more than seven years. However, Bangladesh Bank may extend the period by up to five years under Section 10(2) in the interests of depositors.

The inspection report said Uttara Bank had rented out several floors of its head office building to eight entities, with some leases exceeding seven years, without obtaining the required approval from the central bank.

The report further said Bangladesh Bank's Banking Regulation and Policy Department allowed the existing rental agreements to continue until their expiry on 12 November 2014, while instructing the bank not to rent out space to any of its directors' business entities in the future.

On 22 January 2015, Uttara Bank sent letters to the companies linked to Azharul Islam and Iftekharul Islam, asking them to vacate the premises after the agreements expired.

Bangladesh Bank also issued letters on 14 January, 7 February, 21 March and 26 June 2018, asking the bank to ensure that the tenants vacated the premises after the lease terms ended.

Despite repeated reminders, the companies allegedly continued occupying the premises after the agreements expired. Uttara Bank also filed a court case in 2019 over their continued occupation of the rented floors.

A Media reporter visited Azharul Islam's office on 2 November to seek his comment on the allegations. His staff officer said the chairman would not speak to journalists as he was busy.

When the reporter visited again on 8 November, security personnel did not allow him to enter the chairman's floor. The reporter later called Azharul Islam on his mobile phone on 9 November. The chairman answered but disconnected the call after the reporter introduced himself.

The reporter subsequently sent him a WhatsApp message outlining the allegations and seeking his response. He had not replied by 10:00pm on Tuesday.