An external panel of the World Bank will start talks with the Anti-Corruption Commission from today to know the progress the anti-graft watchdog made in investigating the evidence of corruption in the Padma bridge project.

The panel will hold several meetings with the anti-graft body till December 6, said an ACC official.

A finance ministry official said the team is also scheduled to meet Finance Minister AMA Muhith today.

Earlier the external panel came to Dhaka on October 14 for the first time.

ACC Chairman Ghulam Rahman said they will meet with the WB external panel today afternoon when their working programme will be chalked out.

Rahman said, “In the meetings we will present the progress in our investigation into the graft allegations and our future plans.”

Chairman of the external panel former chief prosecutor of the International Criminal Court Luis Moreno Ocampo reached Dhaka yesterday afternoon.

The other two panel members are Timothy Tong, former commissioner of the Independent Commission against Corruption of Hong Kong Special Administrative Region; and Richard Alderman, former director of Britain's Serious Fraud Office.

In a statement on November 28, WB Country Director Ellen Goldstein said, “The external panel of internationally-recognised experts will advise the World Bank and co-financiers on the adequacy of the government's investigation.”

The finance ministry official said, whether the financiers, including the WB, will finally provide fund to the Padma bridge project depends on the report of the external panel. Already on November 13, the WB sent a third report to the ACC on corruption evidence.

The ACC official said the third report contained detailed evidence of graft against the public and private officials concerned.

The official said the WB prepared the third report based on information received from the Canadian government and other sources.

The third report also mentions the names of those accused in the earlier report but the latter contains more evidence, the official said.

Prior to the panel's second visit to Dhaka, the co-financiers met in Manila for preliminary discussions on revising the project implementation arrangements from November 28 to 30.

The WB said adequate progress in investigating the corruption evidence is necessary to allow project implementation to move forward.

The original $1.2 billion WB credit for the bridge was cancelled on June 29 due to an insufficient response by Bangladeshi authorities to evidence of a conspiracy of corruption involving senior public officials.

Subsequently, additional actions were undertaken, and on September 20 the government agreed to go by four conditions that also include proper investigation into the allegations.

News: The Daily Star/Bangladesh/02-Dec-12

Recently, we heard the finance minister saying in parliament that the impact of the Hall-Mark scam is felt by other banks as well. This statement actually defies claims of many who asserted that the scam was an isolated incident having little implications for the banking sector.

The Centre for Policy Dialogue (CPD) organised a dialogue on governance in the banking sector in the beginning of November where it was highlighted that the amount is rather quite significant for resource-poor Bangladesh.

Some people, including bank officials, told us later that the CPD's dialogue was not helpful for the banking sector as it could affect the reputation of the banking industry. I could not but feel sorry for those who consider constructive discussions harmful and think that our reputation is still upheld after such a proven disgraceful incident.

The think-tank mentioned in its presentation that the Hall-Mark incident is not only a case of financial loss but also a deep dent on the confidence and trust of the customers of Sonali Bank. It is not the loss of the goodwill of a particular bank only, but also of the total banking industry.

Such an erosion of reputation of banks could have multiple chain effects, leading to a reduction in deposit, high interest rate and a fall in share prices of the concerned bank, which in turn can constrain the role of the banking sector in catalysing the growth of the economy.

It is undeniable that the banking sector, the dominant industry in Bangladesh's financial sector, has flourished during the last three decades as a result of increased demand of the growing economy. If one looks at the pace of development of the banking industry, total asset has grown by 324.2 percent, while deposit has increased by 326.9 percent during 2001-11.

Total deposit is currently 51 percent of GDP. The ratios of money supply, total deposits and total domestic credit to GDP have shown a steady increase over the years, indicating an increased financial depth.

Financial inclusion, though still low compared to the developing countries, have expanded since the independence. Population per bank branch has decreased from 57,700 in 1972 to 17,660 in June 2011, though this does not undermine the fact that a large number of people still remain outside the banking services.

Over the last few years, the country's banking sector has made progress in terms of meeting indicators such as capital adequacy, asset quality, management quality, earnings, liquidity and sensitivity to market risks (CAMELS).

However, the seemingly good performance does not capture the reality which raises doubts as regards the real health of banks, particularly of the state-owned ones. The government embarked on a policy of liberalisation, by denationalising the nationalised commercial banks in the 1980s in view of the deteriorated performance and inefficient resource management. The reform process got momentum in the 1990s and continued afterwards.

The latest major reform programme was the corporatisation and restructuring of the state-owned banks in 2007. This led to some improvements initially. For example, the state banks, for the first time, earned profit in 2008; the amount of non-performing loans came down and expenditure-income ratio reduced.

However, the core strength of these banks remained weak. For example, performance in terms of efficient resource allocation through disbursement of credit to productive sectors, prudent risk analysis, supervisory and management quality, improved customer service and the overall governance continue to depict rather disappointing picture. In this context, a set of key recommendations are presented below.

First, the absence of a comprehensive risk management policy in many banks makes it difficult to handle fraud and other extraordinary cases. Core risk management guidelines of Bangladesh Bank are hardly followed by the state banks.

The manual for loans and advances containing policies, procedures, processing and reporting transactions, review of security and collateral and responsibilities at different levels is not followed by many banks due to which it becomes difficult for banks to handle and manage clients with various levels of exposures.

Second, the internal control department which is supposed to be a critically important department is weak in state banks. This is partly due to incentive failure which prevents hiring of qualified persons for this department. As the nature of the job involves patient scrutiny of compliance, people are reluctant to work here, and those who do, are often in a way dumped in this department.

Third, the practice of appointing directors for the board of the state-owned banks based on the political loyalty and affiliation has to be changed. The "Fit and proper test criteria" of the Bangladesh Bank Guidelines 2010 for the nomination of directors should be implemented fully. Due to political baggage, directors of state banks cannot perform their duties independently and remain morally obliged to listen to political instructions.

Fourth, the recent scam has also exposed the total failure of the senior managers of the bank in discharging their duties. In the state banks, the major preoccupation of the CEOs is to "manage" the board to keep their jobs. Unfortunately, it is also difficult for them to do otherwise in a setting where many decisions are influenced by political instructions. As a result, these officials lack creativity and initiatives towards developing good business plan, effective people management programme, regulatory compliance practice and effort towards clients' satisfaction.

The board should only guide and support the CEO to achieve bank's targets and evaluate his performance on the basis of key performance indicators. The general managers should be transferred from one state bank to another not only to help transfer good practices, but also to reduce the possibility of fraudulent and unethical practices.

Fifth, the human resource (HR) departments of state banks remain weak and powerless to take decisions on recruitment and promotion, partly due to a lack of capacity and external influence. The HR policy of banks should not only arrange for appropriate training but should also involve the reward and punishment practices.

Sixth, an issue related to the HR development is the automation and implementation of management information system in banks. It is apprehended by experts with fair amount of certainty that there may be many more Hall-Mark like cases that wait to be uncovered in other banks. The mess may become unmanageable, if these are not dug out through transparent and automated banking practices.

Seventh, the supervisory and monitoring role of the central bank needs to be significantly strengthened and the Banking and Financial Institutions Division should be dismantled to get rid of dualism in the regulatory mechanism for smooth functioning of the banking sector.

Finally, a commission for the financial sector is being planned by the government for its improvement. It is expected that recommendations of the commission will be implemented with due sincerity.

News: The Daily Star/Bangladesh/02-Dec-12

The board of directors of the Bangladesh Bank (BB) will discuss today (Tuesday) time extension prayers submitted by two proposed banks, which failed to comply with the letter of intent (LoI) requirements in time, officials said.

"Our board may take final decision in the meeting after discussing the matter," a BB senior official told the FE Monday.

He said the central bank will also submit a status paper on other seven proposed banks in the meeting highlighting their latest situation.

The paper will include ensuring deposit of money for complying with paid-up capital, tax-related issues, and default loan position of the sponsors of the proposed banks, he added.

The BB is now checking the tax-related issues with the National Board of Revenue (NBR) in case of local sponsors to ensure whether the blocked money for maintaining the banks' paid-up capital is taxed or not, according to the BB officials.

"We've sent necessary documents to the Credit Information Bureau (CIB) of the central bank to know about non-performing loan issue of the sponsors of the proposed banks," another BB official said.

Under the existing provisions, the paid-up capital of a new bank will be no less than Tk 4.0 billion, and sponsors of the non-resident Bangladeshi (NRB) banks will deposit their paid-up capital in foreign currency.

As part of the scrutiny, the central bank is now collecting information on blocked money for paid-up capital and default loan of the sponsors from the banks concerned and the CIB.

Seven proposed commercial banks earlier applied to the central bank for licences to start their business after complying with the requirements as per the LoI.

The proposed banks, which have submitted documents to the BB, are - Union Bank Limited, Farmers Bank Limited, Meghna Bank Limited, Midland Bank Limited, South Bangla Agriculture and Commerce Bank Limited, NRB Commercial Bank Limited and NRB Bank Limited.

News: The Daily Financial Express/Bangladesh/27-Nov-12

The International Monetary Fund (IMF) has expressed its deep concern over the recent rise in non-performing loan (NPL) in the banking sector. It wanted to know about the actions the government had taken in realising loans taken fraudulent 14 from different state-owned banks.

The agency also has sought to know about the progress relating to the special 'diagnostic examination' that the Bangladesh Bank (BB) is supposed to conduct on four state-owned commercial banks (SCBs) as was asked by it in September last.

A note containing the concerns of the multilateral lending agency, along with a set of queries made on the entire banking and financial sectors, has been sent to the Ministry of Finance (MoF) and the Bangladesh Bank ahead of the visit of Extended Credit Facility (ECF) team of the Fund.

The ECF mission, headed by David Cowen, is scheduled to arrive in Dhaka today (Tuesday) to review the progress in the pledged reforms in banking and other financial areas as were agreed upon under the credit deal, a senior finance official said.

The BB top officials said they had completed a great deal of tasks towards completing the special 'diagnostic examination' to identify weaknesses of he SCBs in asset quality and liquidity management.

"We are very much operational in conducting an inclusive diagnostic examination of Sonali, Janata, Agrani and Rupali banks," BB's Deputy Governor Abu Hena Mohammed Raji Hasan told the FE on Monday.

The examination, along with identifying other alleged malpractices, irregularities and rise in classified loans in the entire banking sector is being conducted by the central bank, Mr Raji added.

The amount of classified loans increased by Tk 72.82 billion or 1.58 percentage points in the third quarter of 2012.

As of September 30, the total amount of non-performing loans in the banking sector soared to Tk 362.82 billion or 8.75 per cent of the total outstanding loans.

The amount of NPL was Tk 290 billion or 7.17 per cent of total outstanding loans of banks on June 30 last, data of BB shows.

News: The Daily Financial Express/Bangladesh/27-Nov-12

Md. Abdul Jalil, MP, Chairman of Mercantile Bank Limited, inaugurates the 82nd branch of the bank at SM Shopping Center, Raujan in Chittagong.

News: The Daily Sun/Bangladesh/27-Nov-12