Mamun Rashid

I have high regards for Dr. Mirza Azizul Islam. He is not only a very good macroeconomist of our country, I also consider him as one of the few but very successful finance ministers of Bangladesh. I was very embarrassed, when this illustrious person came to my room to know -- 1) what actually went wrong with Hallmark loan? 2) Who is responsible for this scam? And, more importantly, 3) what we need to do avoid such surprises in future?

Despite being a bank executive for 26 years and having managed corporate and institutional loans, corporate risk analysis, portfolio review as well as audits at home and abroad, I decided to exercise caution while answering his questions, because the questioner was none but Mirza Aziz.

With all humility, I thought the main culprits in this case were -- a) the way we handle inland bill purchase or local bill discounting in the commercial banks and report those to the supervisory authority, b) the way we analyse and approve corporate or institutional risk, especially in the state-owned commercial banks, c) failure of the senior management of the bank to manage and command large client exposures, d) boards' ignorance or absence of oversight of the statement of affairs in the bank, e) absence of regular audit, f) lack of internal control and compliance; and most importantly g) absence of a process guide or transaction guidelines with regard to transaction processing, security and collateral review, transaction reporting and overall trial checks in the bank.

Any newspaper readers or television viewers can tell now -- there were pressure from the political masters or, may be, from the board, nexus or unholy alliance between senior managers of the bank and the client, lack of supervision from the head office of the bank, arrogance or corruption of the branch manager, inexperience or lack of focus of the board, tension between central bank and the ministry of finance and weak governance or risk management in the state owned commercial banks. Bangladesh Bank wanted to shy away from taking the responsibility claiming that the state-owned banks are managed and monitored by ministry of finance.

I did also tell him, why and where I had not agree with the suggestions put forward by some of our former central bank seniors or didn't like the abrupt decision taken by Bangladesh Bank to reconstitute the board of Sonali Bank. I thought most important issue here was -- to protect or safeguard the Sonali Bank from a large loan loss, if not the largest in the history. For doing that what my more than two decades' 'risk management' experience tells me is that -- we needed to move fast to -- 1) review the existing security and collateral arrangement, 2) improve the security and collateral arrangement by taking more 'hard collateral' like land property or creating lien on the clients fixed deposits or 'quasi cash' held with other banks or institutions, 3) enter into a new repayment agreement with the client covering the entire exposure and 4) making sure, the client has an operating model in place to run the business. No matter what happens, reconstituting the board or going for legal action against the client should not get priority attention at this moment. I think, most of the stakeholders are being driven by 'heart, rather than 'head'.

Yes, media played the role, as expected. If we could create the 'mess', why won't media report this? In fact they did a good job in this regard, with a few reporters putting up fantastic reports without even attending any course on bank management or accounting or law. However, regulatory or supervisory agencies were supposed to keep their 'cool', in order to handle the affair dispassionately. It was very sad, where we found out 'the functional audit report' was made available to the media by the 'top man' of the watchdog agency on the same day it was received by the very agency. May be 'the person' or the regulator was totally hyped up to 'protect' their image or institutional integrity. Lately, it is being discussed in the corridors of the banks, sending any confidential report to the central bank is almost like launching a product through press conference. I wanted to humbly ask them the questions -- 1) why did they didn't come up with any guideline on 'bill discounting' even after many years of the much talked about 'Omprakash Agarwarl' case? State-owned banks may be owned by ministry of finance, but why did not the central bank supervise or monitor them well? And 3) why have we never heard any comment from them on the appointment of senior managers in the state owned banks?

I do agree with a few former central bank seniors about the need for, 1) putting up a single selection or promotion committee in the central bank for the positions of deputy general managers and general manager, 2) making Bangladesh Bank clearly responsible for banking sector supervision irrespective of the ownership of banks, 3) appointing people in senior management positions of public sector banks by the ministry of finance in consultation with the Bangladesh Bank, 4) ensuring autonomy of the central bank and 5) dismantling the bank and financial institution division at ministry of finance. However, I would also remind them of the following: 1) extension of the tenure of the central bank governor may not at all help the situation, we rather need to refocus on the procedure followed for the selection of the seniors at the `watch dog' agency, make sure the central bank board is accountable with a clear terms of reference and 2) the entire board of the state owned bank must be manned by professionals, having clear visibility about the business more importantly banking affairs with total ownership of the banks' activities.

I also told my favourite person that change of the top management or even board will not, I repeat will not, serve the ultimate purpose of streamlining our banking sector, unless we change the way- a) how we manage credit risk, market risk and operational risk in the banking sector, b) how we reward and punish the 'right' and the 'wrong' people in the bank, c) how we manage and supervise the 'large exposures or relationship' and d) how we create and manage the 'management information' or 'MIS' in the banks. I am more than sure there are more 'Hallmark' like scams have remained hidden in our banks. Some of those started emerging in the process. We need a complete 'overhauling' of the system and make 'reform' or 'restructure' a part of our management culture. Our development partners have been committed in the past; I know for sure they will be helping us in future too, provided we maintain 'transparency' in the execution process. We need a responsible and inclusive banking sector, in order to write the 'cheque' for a better economic future and make the transition smooth.

(Mamun Rashid is a banker and economic analyst. E-mail: mrashid1961@gmail.com)

News: The Daily Financial Express/Bangladesh/11-Sep-12