Benazir Rahman :
The term “banking scam” has become very common to the people of Bangladesh. In the recent times it can be seen that many banking scams and fraudulent have been exposed most of which are related to nationalized banks. The Hall-mark scam, Bismillah Group etc. all are the burning examples of such scams.The banking sector is one of the most significant sectors of our economy which contributes to both public and private sectors a lot.Banks collect money from depositors and provide loan to business entities and other borrowers.
Whenever banks involve with such loan scams common people especially the investors lose their confidence and trust in the banking industry. The State-owned banks are in more vulnerable position than the private commercial banks. The topmost nationalized bank of Bangladesh, Sonali Bank Ltd., has already weakened its backbone due to liquidity and capital shortages. The main governing authority of the banking sector, Bangladesh Bank (BB), has failed to prevent such issues in due time and the cam issues has already shaken the structure of banking sectors. Almost all banks has now-a-days involved in such scams.
The BB guideline for the banks may be described in terms of the common elements of bank regulation as follows:
Chartering of banks
Liquidity requirements
Capital requirements
Safety net for depositors
Disclosure of financial condition
Bank examination
Interest rate restrictions
Loan classification and provision for loan losses
Intervention in bank management
But almost all the accused banks have failed to fulfill the earlier requirements as per BB regulatory structure.
Types of scams and frauds in banks
Following terms are generally used to describe fraudulent and corruption in the banking sector:
1. Dictation loans
2. Fictitious loans
3. Insider loans to government officials
4. Diversion of interest payments
5. Captive government deposits in government banks
6. Use of bribery to facilitate loans
7. Use of bribery or influence to subvert the loan approval process
8. Labor union intervention in loans, procurement, and recruitment
9. Sale of a forgivable loan
10. Use of bribery or influence to obtain a “sick industry” classification
11. Use of bribery or influence to re-schedule loans
12. Use of influence to waive regulatory restrictions
13. Use of influence or political power to forestall action on defaulted loans
14. Bribe demanded by bank officials to release funds
15. Bribery of external auditors by bank managers
16. Bribery of BB officials by PCB managers
17. Technical loopholes in bank regulation
18. Diversion lf loans
Many scams related banking industry of Bangladesh reveals in recent years. The very frequent and trendy style of loan defaulting anecdote in banking sector of Bangladesh is loan scam. Recently a series of scams has started threatening the banking sector in enormous way.The biggest scams of recent time is related to the state-owned banks.Last year, 2012, Sonali Bank loan scam started the episode and is continuing with Bismillah loan scam, Basic Bank loan scam and so on in a large scale. The scam story of all phases is almost same and maintains a rotation.
According to Anti-Corruption Commission, 41 reputed commercial banks in Bangladesh were involved actively in Sonali bank scam of Tk.3665 crore with Hallmark. Over 100 branches of seven state-run banks, 29 private banks and five foreign banks patronized that loan scam according to them.The Anti-Corruption Commission has found some 41 commercial banks were involved in the non-funded part of the Sonali Bank loan scam. Hall-Mark Group and T & Brothers, Paragon Group, Nakshi Knit, and DN Sports swindled around Tk 36.066 billion from the Sonali Bank- Tk 19.18 billion in the funded part and about Tk15.08 billion in the non-funded part, the investigator said. Of the Tk 3,547 crore, Hallmark Group alone took away Tk 2,686.14 crore, T and Brothers Tk 609.69 crore, Paragon Group Tk 146.60 crore, Nakshi Knit Tk 66.36 crore, DN Sports Tk 33.25 crore and Khanjahan Ali Tk 4.96 crore.
Basic Bank scam
Such scam issue has come to the forefront again with a recent scam at Basic Bank that approved loans of Tk 4,500 crore, mostly without proper documents and scrutiny. The bank’s board and top management were found to have helped the culprits steal the money. A Bangladesh Bank inspection found many irregularities in four branches of state-owned Basic Bank – Motijheel, Shantinagar, Dilkusha and Gulshan branches – that involved loans of nearly Tk 4,424.93 crore between December 2009 and November 2012. BB inspection report shows Basic Bank issued loans of Tk 45 crore to AB Trade Link and another Tk 112 crore to Ma Tex, EFS Enterprise and SPN Enterprise. All the four organizations are nonexistent.
Bangladesh Bank Governor said as part of its stronger supervisory vigilance on fraud in banks, the central bank has put in place an on-line electronic ‘supervision dashboard’, which can provide warning signs of potentially fraudulent transactions. Referring to a Material Loss Review (MLR) for recent bank fraud¸ he said the central bank found “clear negligence” in the affected banks in respect of mandatory control and bona fide verification routines like Know Your Customer (KYC), Credit Risk Grading (CRG), and Anti Money Laundering Provisions. It demonstrates major lapses and deficiencies in their credit administration, risk management and internal control and compliance functions, he said. (Financial Express, BB boss blames negligence for state bank scam, Published: Thursday, 14 February 2013)
Discipline in the banking sector is apparently under strain. At the same time criminal activities in banks have increased. In the absence of good governance, many banks have indulged in irregular activities and corruption.Plundering of resources is taking place in state-owned commercial banks. Loans are being advanced in the name of fake companies. There is little prospect of recovering such loans. Bangladesh Bank is busy with state-owned commercial banks and is hardly able to inspect the private commercial banks for shortage of manpower although irregularities have also been noticed in private commercial banks.
The BPC’s accumulated losses have also resulted in higher NPLs for the SCBs, forcing the government to issue special recapitalization bonds to allow write-down of some of these NPLs.
Lack of supervision by the authority(BB)in case of SCBs
Abu Hena Md Razi Hasan, deputy governor of BB, told that the banking company laws prevented them from taking any action against the board or the managing director of state-owned banks. “We can take action against private banks only,” said Hasan.
If the central bank finds any irregularities in state-owned banks, it seeks explanation from the board and the management, and then sends the documents to the government, he said. (The Daily Star)
Banking sector is a great source of internal borrowing to the government in each year’s fiscal budget. According to the recent budget in June 2013, Bangladesh government has projected to borrow from the banking sector in the next fiscal year tk.25, 993 crore. But at a same time the sector is threatened with loan fraud series and also liquidity crises. Only a few are disclosed to public through print and electronic media and the original scenario are surely more horrible.
It is suspected that loans have been given to fake companies because of political pressure and involvement of dishonest bank officials. Directors of state-owned commercial banks appointed on political influences have allegedly played a vital role in this regard. Millions of Taka has been withdrawn in the name of fake companies by opening local letter of credit. Although many irregularities have been detected by the BB, no corrective action has been taken against banks and bank officials. Letters have been issued to the chief executives of the banks several times.
[Benazir Rahman teaches economics in School of Business, Northern University, Bangladesh]
