BB probe detects anomalies in financials of First Finance

Posted by BankInfo on Wed, Jul 12 2017 11:09 am

The central bank has recently detected anomalies of serious nature in the annual financials of the First Finance Ltd, a listed non-banking financial institution (NBFI).

The NBFI in question allegedly resorted to doctoring of the financial statements with a view to announcing 5.0 per cent stock dividends for the shareholders for the calendar year 2016.

However, scrutiny of audited balance sheet, profit and loss accounts, statement of analysis for provision of interest expense and relevant other documents revealed a number of inconsistencies/ anomalies.

In a letter issued on 14 June, BB said that it was mandatory for the NBFIs to get no objection certificate from BB before announcing dividend if the non-performing loan (NPL) was 10 per cent or higher.

First Finance Ltd posted the announcement of dividend on the DSE website on April 30 this year despite having 33 per cent NPL. It also did not take 'no objection' certificate from the central bank.

The BB accused the company of violating the Financial Institution Act of 1993. It also served show-cause notices on the managing director, chief financial officer (CFO) and company secretary and asked them to submit their replies within seven days.

However, the BB issued no-objection certificate to the First Finance to disburse 5.0 per cent stock dividend under 'special consideration'.

First Finance Ltd which was a 'z' category company in the stock market was upgraded to 'b' category following the announcement of the latest stock dividend. The company was listed on bourses in 2003. The closing price of the issue on Monday was Tk 11.50 on the DSE.

In its balance sheet and profit-loss statement for the year 2016, First Finance showed the retained earnings and net profit at Tk 63.64 million and Tk 50.12 million respectively. But the retained earnings shown in the profit-loss statement submitted with the 'Analysis for Provision of Interest Expense' was in the negative.  The retained earnings in the latter case were minus Tk 24.72 million.

The BB also found that First Finance has shown Tk 1.86 million as interest payable against a term deposit totalling Tk 5.52 billion. The actual amount of payable interest will be Tk 243.34 million. It is a clear violation of article 27 of the International Accounting Standards and the Bangladesh Accounting Standards, the central bank in its letter said.

The central bank also said that the First Finance violated the article 10 of Financial Institution Act 1993 while announcing dividend despite having negative retained earnings.

While contacted, a senior BB official told the FE that the central bank has given conditional approval to the company to give 5.0 per cent dividend.

Regarding the anomalies, First Finance senior executive vice president and consultant Mr Mansur said the dividend has been approved by the board where an observer from BB was also present.

'I don't want to comment as the proposal was submitted to the board and approved by it with BB observer present there,' he said.

There was no inconsistency rather there was shortfall in the provision worth Tk 63 million.

"If we could give the dividend the shareholders would have been the gainers," he said, adding: there is neither any issue of hiding nor stealing.

In the meanwhile, following a writ petition filed by some shareholders, a High Court Division bench has stayed the holding of the annual general meeting (AGM) by the First Finance, scheduled for June 15 last, for a period of six months.

news:financial express/12-jul-2017
Posted in Banking, News