The government will request the International Monetary Fund to waive a condition about the exposure limit of commercial banks in the stockmarket. The condition is tagged with a loan.

Earlier the IMF asked the government to keep such an exposure limit of a bank at 25 percent of its total capital -- as a condition to release the second instalment of its $1 billion loans for Bangladesh.

But the government wants the exposure limit to be at 40 percent of a bank's total capital. The existing exposure limit of a bank is 10 percent of its deposits.

An IMF mission will visit Bangladesh for two weeks from today to review the implementation of its conditions before releasing the second instalment or $141 million by November.

The lender has approved a $987 million loan for Bangladesh to help it overcome macroeconomic pressures and build a buffer reserve.

Bangladesh entered the three-year loan deal by committing to a wide-range of structural reforms.

Bangladesh received one of the seven instalments last year.

Before getting each of the six equal instalments, the government will have to fulfil a set of conditions of the Washington-based lender.

The government by this December has to meet 11 more conditions.

The Bangladesh Bank will have to issue an order consistent with the amended banking company act to set a bank's stockmarket exposure limit at 25 percent of its total capital.

The condition was scheduled to be fulfilled by September.

A finance ministry official said the government will request the IMF to relax the condition and increase the limit to 40 percent of a bank's total capital.

However, the central bank in a previous proposal sent to the finance ministry recommended the limit at 25 percent.

Officials said the finance ministry in March formed a seven-member committee to further scrutinse the central bank's proposal.

The committee recommended raising the ceiling to 40 percent.

The finance ministry official said, as per the recommendations of the committee, the ministry has already finalised the proposal for amendment to the banking company act. The committee also made a proposal for keeping the ceiling at 40 percent.

The official said the proposal will soon be placed in a cabinet meeting for approval.

The IMF mission has already sought to know from the government about the status of the new BB order on the banks' stockmarket exposure limit.

The IMF imposed another condition that the government cannot make hard-term borrowing beyond $1 billion. The government will not need to cross the limit by December. But the government's various requirements next year may need around $3 billion.

The finance ministry official said the government plans to issue $750 million worth of sovereign bonds in the international market.

Besides, the government's guarantee for the private sector power producers will require about $2 billion next year.

The finance ministry official said they will also request the IMF to increase the limit of hard-term borrowing for the next year.

The official said they hope to implement the other conditions, including the demutualisation of Dhaka and Chittagong bourses and the adoption of an automatic adjustment mechanism for retail petroleum prices, by this year.

News: The Daily Star/Bangladesh/12-Sep-12

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

The central bank is going to start special inspection in 152 foreign exchange branches of commercial banks soon to find out irregularities, if there is any, relating to purchase of inland bills, officials said Monday.

"We're now making preparations to launch inspection by the end of this month," a top central banker told the FE, adding that the Bangladesh Bank (BB) has taken the latest measure as part of its ongoing efforts to mitigate the risk of fraud and forgeries in the country's banking sector.

The central bank has selected 152 out 858 foreign exchange branches, officially known as authorised dealer (AD) branches, considering different indicators including their exposure to accepted bills and inland bill purchase (IBP) in both foreign and local currencies.

A meeting was held in this connection at the central bank Monday with Executive Director of the BB Ebtadul Islam in the chair, the central bank officials said.

"We've discussed the terms of reference of the inspection teams, which will probe into irregularities, if detected, in the AD branches," another BB official said after the meeting.

He also said inspection teams will be formed comprising the officials from two Departments of Banking Inspection (DBIs), Department of Financial Integrity and Customer Services (DFICS) and Foreign Exchange Inspection and Vigilance Department of the BB.

"We'll finalise the terms of reference of the inspection team soon," the BB official noted.

Besides, the central bank will form a 50-member Anti-Fraud Vigilance Squad shortly aiming to check the risk of fraud and forgeries.

The central bank has taken the latest measures against the backdrop of rising trend of large-scale irregularities in purchasing and providing acceptance of the bills against local LC (letter of credit)-denominated foreign currency by different bank braches in the recent months.

Hallmark Group, along with a few other business entities, has allegedly swindled funds worth Tk 35.47 billion from the Sonali Bank Limited involving 57 branches of 27 commercial banks using the accommodation bill against back-to-back LCs ignoring banking rules and regulations, according to the central bankers.

An accommodation bill of exchange is a bill of exchange which has been drawn for the mutual financial accommodation of the parties involved. Generally it is drawn not for the value received.

In order to oblige friends, many times bills are drawn, accepted and endorsed by businessmen without any consideration. By accepting such a bill a person becomes able to lend his name, and the other party (drawer), taking advantages of his reputation, gets it discounted with his bank.

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

The country’s commercial banks have written off Tk 210 billion from their bad loans till March 2012, the central bank reported recently.

Loans write-off is meaning that banks have lost the last ray of hope in recovering those loans, said a Bangladesh Bank (BB) official.

Usually, the respective bank management has to transfer the record of such default loans to a separate register from the main balance sheet.

In this case, a bank has to adjust the amount equivalent to written off default loans to the main balance sheet from the annual profit the bank earned.

For an example, a bank earned Tk 5 billion profit in the year 2011. The bank’s management wants to write-off Tk 1 billion. Therefore, the bank shall need to show Tk 4 billion profit as it has adjusted Tk 1 billion from the profit, the official detailed.

He said the central bank has introduced the loan write-off provision in 2003.

“A bank can write off default loans. But it must show 100 percent provisioning for that. So, loan write off is meaning a ‘loss’ of the bank,” said the official.

On the other hand, the list of defaulters of such loans is recorded at Credit Information Bureau (CIB) of the central bank and such defaulters would not be allowed to take fresh loan from any bank, he said.

According to BB report, banks have written off Tk 290 million in January-March period of 2012. Of the amount, the private banks together have written off Tk 200 million while the remaining amount was abandoned by all the state-owned commercial and specialised banks.

On 31st December 2011, total volume of write off loans in the country’s banking sector was Tk 208.43 billion.

Out of the total amount, the stake of state-owned commercial banks was Tk. 90.77 billion including Tk 32.27 billion by the state-owned specialised banks.

News: The Daily Sun/Bangladesh/11-Sep-12

The central bank yesterday relaxed rules for inland bill purchase (IBP) following a meeting with senior officials of commercial banks. IBP is a credit facility.

With the latest decision, banks can now accept inland bill purchase without pre-inspection of goods sent by exporters. But the banks must be sure about the goods in other ways, according to an amended notice issued yesterday.

SK Sur Chowdhury, deputy governor of the central bank, said commercial banks can now approve the acceptance bills if they (banks) ensure that the documents of LCs for the products being imported are not fake.

“Banks will take complete liability if they give acceptance to any bill on the basis of fake documents,” said Chowdhury.

Bangladesh Bank issued a circular on July 11, asking all banks to inspect the imported goods before giving approval to the acceptance bills.

BB's decision came after an inspection revealed that Hall-Mark Group took away Tk 3,547 crore from Sonali Bank's Ruposhi Bangla Hotel branch between 2010 and May 2012 by using fake documents against LCs.

A number of trade bodies recently complained that commercial banks were not providing acceptance for inland documentary bill purchases due to the BB's stern position.

SM Moniruzzaman, executive director of the BB; SM Aminur Rahman, managing director and chief executive officer of Janata Bank, and Helal Ahmed Chowdhury, managing director and chief executive officer of Pubali Bank, were also present.

News: The Daily Star/Bangladesh/10-Sep-12