The British High Commission in Dhaka considers financial statements from the country’s 33 commercial banks to be non-compliant for processing a UK visa.

After extensive examination and discussion with the Bangladesh Bank Governor several times during last one year, British High Commission earlier selected 14 private and multinational banks as qualified to accept financial statements for issuing visas to Bangladeshi citizens, a senior official of the Banking And Financial Institution Division said.

A tug of war has been prevailing between the British High Commission and foreign ministry centering the issue during the last six months as the government sees it as a violation of the Vienna Convention 1961.

The British authorities, in the meantime, have suspended the vital move following request from Bangladesh’s foreign ministry.

The 14 banks those were selected by British High Commission are— AB Bank, National Credit and Commerce Bank, Eastern Bank Limited, Southeast Bank Limited, One Bank, Mutual Trust Bank, Brac Bank Limited, First Security Bank, Shahjalal Islami Bank, State Bank of India, Standard Chartered Bank, Citibank N.A., Bank of Ceylon and HSBC.

With some 47 commercial operating in the country currently, the central bank gave go-ahead for six new banks in April this year.

The UK Border Agency earlier said the UK government will accept financial statements from the selected banks from November 1.

Commenting on the issue, Bangladesh Bank Governor Dr Aitur Rahman told reporters that he knew nothing about the selection of banks for UK visa process.

Sources in the Banking Division of the finance ministry said a brief summary of the UK government’s move has already been sent to the foreign ministry.

The division has recommended wide-range discussions with the stakeholders to resolve the issue, sources said. A senior official of the Banking Division said they sought opinion from the central bank through a letter sent to BB Governor Dr Atiur Rahman.

After receiving feedbacks from Bangladesh Bank, the Banking Division will decide further course of action to address the discrimination by selecting a handful of banks from accepting financial statement by the UK authorities in the name of financial compliance in processing UK visa, the official added.

News: The Daily Sun/Bangladesh/14-Nov-12

Bangladesh Bank Governor Dr Atiur Rahman, speaks at a seminar on ‘Financial Integrity: Managing Operational Risks and Avoiding Serious Losses at the Branch Level’ at City In Hotel at Shibbarhi in Khulna Sunday.

Bangladesh Bank Governor Dr Atiur Rahman urged the officials of the central bank to tighten supervision on corporate governance, internal audit, internal controls, and external audit in lowering the risk and discouraging repetition of fraudulence.

The central bank has to go forward with firmness and promptness and every bank and Bangladesh Bank have to keep watch so that none can escape by committing any fraud, he said.

The BB chief made the observations while speaking at a seminar on “Financial Integrity: Managing Operational Risks and Avoiding Serious Losses at the Branch Level” at City In Hotel at Shibbarhi in Khulna Sunday. Bangladesh Bank, Khulna, organised the seminar.

Atiur said the central bank has undertaken several reforms and redesign actions for its financial sector supervision framework in order to ensure sound growth of the country’s banking sector.

“As part of it, the BB has instituted quick inspection and formulation of a review report on activities and various issues of financial statement analysis of the banks, and also made two separate departments out of the previous foreign exchange inspection and vigilance department,” he added.

The central bank has been setting up an Electronic Dash Board in order to identify the trends that might indicate irregularities and fraudulence from the data and information of the financial statements of the banks collected by the BB’s supervision departments, the BB Chief said.

Atiur said proper directives have been given to the banks for submitting all information regarding export-import including IBP on-line to BB, as well as to adopt IT-based system.

The IT department of BB has also undertaken initiatives to prepare suitable software for the bank. Besides, the banks have been asked to prepare fraud risk assessment worksheets on quarterly basis. The banks to make self-assessment through the worksheets that has more than 50 assessment criteria, said Dr Atiur.

Bangladesh Bank has appointed the National Fraud Risk Detection and Risk Mitigation Adviser who, with the help of the related departments, will detect the limitations of existing policies, strategies, and guidelines of BB, determine the adequacy of the information sent by the commercial banks, and prepare recommendations on future actions along with providing training programme for the selected Bangladesh Bank Staff, said Dr Atiur.

In the Khulna and Barisal divisions, there are more than 1,200 branches of the scheduled banks, or about 15 percent of the total branches in Bangladesh. Overall, these branches manage about Tk 200 billion in loans and advances and about T. 260 billion in deposits, which represents only 6 percent of the total activity in the banking sector, BB chief mentioned.

He asked BB officials to check whether these branches are following the right procedures in handling the deposits of the people of the region.

Less attention from the head office, due to lower transactions and greater physical distance, fewer face-to-face meetings between branch managers and executive management in Dhaka, and other factors could expose these branches to a higher risk of internal and external fraud. Thus, we have to keep our keen/watchful eye on it.

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

Eastern Bank Limited (EBL) organised a training course on 'Prevention of Money Laundering Act, and Anti Terrorism Act-2012' for the officials of different commercial banks of Noakhali.

The training course was held at Nice Guest House and Training Hall at Maijdee Court in Noakhali Saturday, said a press release.

The training course was participated by 55 branch managers from different banks of the district.

Mohammad Musa, Head of Operation Risk of EBL inaugurated the training programme.

Md. Rafiqul Islam, Joint Director, and Mohammad Abdur Rab, Deputy Director of Bangladesh Financial Intelligence Unit, Bangladesh Bank conducted the training course.

Md. Abdul Awal, Head of Operation Risk, SD, ICCD and Mohammad Shahjahan Ali, Head of Compliance Unit, ICCD of EBL also took part in the programme.

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

The economy of a country has been mainly driven over the past few decades by FIRE (Finance, Insurance and Real Estate) sectors. Accordingly, these sectors experienced ebullient growth and formed a major portion of the overall economy. The banking sector especially, has evolved into one of the main pillars of economic growth. However, after the recent financial crisis world-wide, the importance of the banking industry to the economy appears to be dimming slowly. From the recent reports in the various media it is observed with serious discomfort that the banking sector of Bangladesh is plagued dismally with corruption, and some state-owned commercial banks (SCB) are beset with loan scandals that were carried out by some fraudulent and graft-prone companies.

The banking sector of Bangladesh is called the backbone of the economy and needs to be taken care of for sustainable economic development and growth. The banking sector is an increasingly important area that plays critical roles in the economy such as mobilisation of savings, capital formation, 'monetisation' of the economy, promotion of employment, poverty alleviation and uplift of the poor, promotion of entrepreneurship, rapid economic development, and safety of wealth and remittance of money.

The most complex and difficult question now is how to control, contain and reduce corruption in the banking sector. There are multiple achievable ways to combat and control corruption in the sector. Recent analyses and studies conducted by experts, economists and professionals advocate "strong and effective internal control system" and "establishment of the rule of law" that can remedy corruption as well as act as a deterrent to corruption in this sector.

Effective internal control system in the banking sector is a must. This can help ensure that the goals and objectives of a banking organisation will be met, that the bank will achieve long-term profitability targets, and maintain reliable financial and managerial reporting. Such a system can also help ensure that the bank will comply with laws and regulations as well as policies, plans, internal rules and procedures, and decrease the risk of unexpected losses or damages to the bank's reputation due to corruption, baloney and malpractices by the employees of the bank.

In most of the SCBs, and also in PCBs (private commercial banks), effective and strong internal control system does not exist. As part of the internal control system the duties and responsibilities of the staff and managers need to be epitomised and everyone must do his/her jobs accordingly. Every SCB has managers, assistant general managers (AGM), deputy general managers (DGM), general managers (GM), deputy managing directors (DMD) and managing director (MD) to perform day-to-day banking businesses. The duty and responsibilities of these managers, DMDs and MDs should clearly be defined and the Boards of Directors of the SCBs should oversee the performance of these managers.

The corruption that happens in the SCBs is generally detected after some time by the internal auditors, auditors from the central bank, the Bangladesh Bank (BB) or by the government commercial auditors. This is just like 'post-mortem' of cases. If effective internal control systems are in force, the occurrences of corruption and fraud could be detected at the initial stage. When a document is prepared or when a transaction takes place, under the internal control system, it is to be checked and verified by a senior manager and the irregularities, if any, should be detected by the supervising manager.

In addition to department managers, there are many committees, sub-committees and consultants in the SCBs and PCBs, namely audit committee, compliance and audit department, accounts department, audit consultants, accounts and engineering consultants who are involved with day-to-day operations of the bank.

Their responsibilities are to check and verify and express their views and opinions in banking operations including sanctioning of bank loans - short term, medium and long term, disbursement of loans, realisation of loans, checking and verification of the loan-related documents. If these departmental heads and the World Bank-paid consultants performed their jobs perfectly and properly, the fraudulent devices and transactions would be detected. "The internal control system in the banking industries is out of order and does not work," so said Dr Akbar Ali Khan recently.

Sonali Bank Ltd is an SCB and it has all the above-mentioned elements of internal control system. If the internal control system were active, the Hall-Mark loan scam would have been detected long time back. Tk 36 billion (3600 crore) was embezzled and siphoned off by Hall-Mark not in a day or two. It took a long period to get the money by back-to-back L/C, bills discounting, bills purchase, etc. During this period, what did the highly privileged and highly paid MD, the Consultants, Audit Committee Members and the Board of Directors, including its Chairman, do? Why did it take two years to detect the fraud by the regulator's auditors --- that is BB Auditors?

Some borrowers from manufacturing industries managed to get loans from two commercial banks by mortgaging one piece of land with two commercial banks, and, finally, the loan became a 'classified one'. The two commercial banks came to know about the facts when the loan became classified. This reflects the most 'ineffective' and 'corrupt' internal control system in the banking sector of Bangladesh.

The Board of Directors of the bank is responsible for introducing effective and strong internal control system in the banking industry. The Board of Directors of a bank provides governance, guidance and oversight to the senior management. Board members should be professional, objective, capable, and inquisitive, with a knowledge or expertise of the activities and risks run by the bank. The Board should consist of some members who are independent from the daily management of the bank. A strong, active board, particularly when coupled with effective upward communication channels and capable of financial, legal, and internal audit functions, provides an important mechanism to ensure the correction of problems. The Board of Director should realise the importance of effective internal control system as banks handle billions of Taka that belong to individual depositors, businesses and other entities. Internal bank controls ensure that account holders can safely deposit money with banks without the risk that a bank employee might misuse the money or put it in jeopardy by recklessly investing it. Additionally, the bank internal controls are required to ensure that the bank employees comply with the laws of the land and the rules, regulations issued by banks and the central bank.

The board of directors should include in its activities (1) periodic discussions with management concerning the effectiveness of the internal control system, (2) a timely review of evaluations of internal controls made by management, internal auditors, and external auditors, (3) periodic efforts to ensure that the management has promptly followed up on recommendations and concerns expressed by auditors and supervisory authorities on internal control weaknesses, and (4) a periodic review of the appropriateness of the bank's strategy and risk limits.

In Bangladesh banking sector, we unfortunately find that non-professional, inexpert personnel of low academic background are dumped into the Board of Directors with political backing. At the senior management level also one may find many who are working as DGM, GM and DMD in both the SCBs and PCBs with qualifications in different areas other than finance, banking, commerce and economics.

The central bank and the government of Bangladesh (Ministry of Finance) should come up with specific guidelines to control the banking sector effectively by forming the Board of Directors with dynamic people of integrity, professional and excellent academic background.

Some economists opine that business organisations like banks should be run keeping in perspective the business point of view, and not the political one. And no politically-driven appointments should be given to anyone as a member of the Board of Directors of a bank. The central bank should also give guidelines about the qualification and experience of the senior management of banks. A mere circular or a memo is not enough. Whatever circular the central bank issues, it must be implemented and followed by the SCBs and PCBs, and its audit and inspection teams must verify the appointments of the senior management of the banks. There should be some penalty clause in the BB circular for the violators and offenders of the circular.

Finally, the issue of establishing the rule of law to save the banking sector in Bangladesh. Corruption is deep-rooted and permeates the whole society including the banking sector, which is known as the 'life blood' of the economy. Only the establishment of the rule of law, enforcement of laws in every sphere of life can contain corruption. The legal system of Bangladesh ought to be amended and modified so that no offender, irrespective of one's political, social and financial status, can slip out of the punishment for his/her offence.

Without the required changes in the legal system, all the initiatives and efforts of the Anti-Corruption Commission (ACC) and law enforcement agencies to nab the "Big Criminals", who are playing with the lives of the poor people, will falter. The "Big Criminals" would move around flaunting their impunity - and corruption, malpractices, fraud, manipulation and embezzlement of banks' money would continue in this hapless country which is otherwise full of prospects.

The writer is the Group Financial Controller of a private group of industries.

m.jalal.hussain@gmail.com

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

The Ministry of Finance (MoF) plans to issue sovereign guarantee worth $4.50 billion against the priority projects of the government by June next year.

The amount of guarantee sought by different ministries is $2.70 billion more than the limit of non-concessional loan the government is entitled to take under a credit agreement with the International Monetary Fund (IMF) until June 2013.

The projects that different ministries intend to undertake include large power projects and procurement of aircraft and railway locomotives.

The MoF has already assured different ministries of issuing the non-concessional sovereign guarantee to the tune of $1.90 billion by mid 2013, which also crossed the threshold of $1.75 billion fixed under the Extended Credit Facility (ECF) agreement with the IMF.

The finance ministry officials are now planning to seek relaxation of the limit of non-concessional loan from the IMF to meet the soaring demand for sovereign guarantees.

"We are tied to ECF conditions. But we are under pressure from different ministries as without government guarantee suppliers seldom accept any large projects," a senior finance ministry official told the FE.

"We will approach the IMF for enhancing the maximum limit of government guarantee," he added.

Of the $4.50 billion guarantee, power sector alone will need about $2.5 billion to implement its 11 large projects, sources said.

More than 2200 MW power is expected to be generated from the projects.

The power projects are -- improvement in power sector efficiency, Ashuganj 225 MW and 450 MW plants, Kodda 150 MW dual fuel power plant, Bibiyana 300-450 MW, Shahjibazar 300 MW plants, Barapukuria 250 MW thermal power extension project, Ghorasal 300-450 MW project, Ghorasal 3rd unit re-powering project and Chapainawabganj 100 MW project.

The IMF in September last agreed on the issuance of non-concessional loan guarantee by the government worth $1.75 billion until June, 2013 though the government proposed $3.0 billion guarantee ceiling.

Of the agreed total guarantees, non-concessional guarantees worth $1.0 billion may be issued by December this year, and the rest $750 million by June next year. In case the government is unable to issue the guarantee against the whole amount of the ceiling by this year, it will get the facility to carry forward the remaining amount for the same purpose, the ministry official noted.

The government has to restrict its issuance of non-concessional guarantees within the limit of $1.75 billion under the Quantitative Performance Criteria (PC) and the Indicative Targets that are included in the ECF agreement between the government and the IMF.

Neither the government nor the Bangladesh Bank can exceed the set limit of the aggregate guarantee during the stipulated time, said a MoF official.

The IMF in April last approved $987 million in loans for Bangladesh under the ECF to help the country overcome its balance of payment (BoP) constraints. Bangladesh has already received US$141 million as the first installment of the ECF fund.

The next tranche of the ECF fund is expected to be disbursed at the end of the current month, a finance ministry official said.

In addition to power projects, the officials said they were pledge-bound to issue $240 million worth of sovereign guarantee to procure 70 diesel electric locomotives for Bangladesh Railway by the next couple of months.

Furthermore, the government is also planning to issue sovereign bond of $750 million in international market by June, 2013 as Prime Minister Sheikh Hasina has already approved the issuance, a source in the ministry said.

Besides, the finance officials have earmarked $850 million as government guarantee under the head of 'miscellaneous' to be issued by the middle of next year under the heads of any urgent projects, the source added.

"It is a complicated situation to manage the huge demand for loan guarantee and convince the IMF towards our need," a high official in the finance ministry said.

He, however, expressed his optimism about securing a way out by the next month.

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