The International Monetary Fund (IMF) may postpone the release of the second installment of an extended credit facility (EFC) to Bangladesh as the government is yet to meet some of the conditions tagged with the loan.

The global lender approved $987 million ECF on some conditions including the demutualisation of Dhaka and Chittagong stock exchanges by December 2012.

The government received the first tranche amounting to $141 million in April this year. The rest of the money was said to be given in six equal installments upon showing solid progress in fulfilling some prescribed reform measures.

In the second tranche, the government was expecting to receive $141 million this month.

“The release of the second tranche of has become uncertain as both sides have failed to reach a consensus on some issues including amendment to the VAT law, Banking Company Act, banks’ stock market exposure and the guarantee ceiling,” a top official of the finance ministry said.

He also said the officials of finance ministry and Bangladesh Bank (BB) are continuing their discussions with the resident officials of IMF on the issues, but no significant progress was taking place.

Sources said the concerned officials of Bangladesh Bank became frustrated as the finance ministry did not meet some conditions it earlier agreed to fulfill to get the second installment of the loan.

Sources in the Finance Division said that IMF’s resident representative Dr Eteri Kvintradze visited the ministry and the banking division on October 22 to learn about the progress in fulfilling of the conditions.

Later, the IMF representative has sent her observation to the IMF headquarters.

The report was set to be placed at the board meeting of the IMF scheduled to be held on October 30. However, the meeting did not take place, another official of the finance ministry said.

A visiting IMF team in September expressed dissatisfaction over the delay in reviewing the VAT law and Banking Company Act.

The finance ministry earlier decided to set banks’ stock market exposure set at 40 percent of the paid-up capital, which the IMF recommended setting at 25 percent, sources said.

The ECF agreement also stipulated that the government under no circumstances can issue sovereign guarantee and take non-concessional loans exceeding $1.0 billion by December next.

But the government has already crossed the limit.

Former adviser to a caretaker government Dr Mirza Azizul Islam told daily sun that the release of the second tranche of ECF fund might be suspended as the government failed to meet the conditions set by IMF.

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

Bangladesh Bank Governor, Dr Atiur Rahman said urban and rural citizenry and civil society groups can contribute significantly to sustainable development by fostering energy efficient, environmentally sustainable output practices; and also by adopting sustainable consumption practices and ways of life.

"Higher public and private investment in sustainable agriculture, land management and rural development will be needed to ensure sustainable agricultural production and productivity globally," he said while addressing as chair in a session on "Sustainable Production and Consumption patterns" of a day long programme on "National Consultation Workshop for the formulation of Work Plan for Rio+20 conference."

The programme was orgranised by Palli Karma Sahayak Foundation (PKSF) at its auditorium on Saturday.

BB governor said key areas for investment and support requires inclusion of sustainable agricultural practices; rural infrastructure, storage capacities and related technologies.

Ferreting to "Rio+20 conference" he said poverty eradication and promoting sustainable patterns of consumption and production, and protecting and managing the natural resource base of economic and social development are the essential requirements for sustainable development.

"This needs to be achieved by promoting sustained, inclusive and equitable economic growth; fostering equitable social and human development while promoting ecosystem conservation, regeneration and resilience in the face of current and emerging challenges," Dr Atiur added.

BB governor said Bangladesh is a low energy consuming country with per capita annual consumption of only 220 KW hours, supporting production of zero or low carbon emission energy generation. The Government of Bangladesh is trying to make the demand side management (DSM) of energy through energy efficiency and conservation measures involving making efficient appliances and equipment, he noted.

It is estimated that nearly 400MW power can be saved by changing fluorescent bulbs to CFLs and another 400MW by making electric fans efficient, he said adding  Besides, nearly 30 per cent load reduction is possible by increasing energy efficiency of fridge and air-conditioners, Dr Atiur added.

On power sector investment he said the government is investing substantially in renewable energy, particularly solar power and biogas for rural households and enterprises.

He further said the current electricity generation from Solar Home Systems (SHSs) in the country amount to 65 MW.
The target is to install 2.5 million SHSs by 2014 through IDCOL, he said.

Bangladesh plans to generate 5 per cent of its electricity from renewable energy sources by 2015 and 10 per cent by 2020, he added saying, "The government needs to focus on off-grid areas (60 per cent of rural areas) for power generation through renewable to address poverty elimination and achievement of all the MDGs."

He also said that BB has issued guidelines for Environmental Risk Manage-ment and Green Banking in 2011 aiming at ensuring environment friendly business practices by banks and financial institutions. Banks have been instructed to install solar power system while opening bank branches in rural areas.

BB has introduced Taka 2.0 billion refinance line for financing solar energy, bio-gas and effluent treatment plant (ETP), at only 5 per cent interest rate, he said adding "BB has financed 18MW PV module manufacturing plant of Rahimafroz at a cost of USD 4.5 million through BB green fund."

News: The Daily Independent/Bangladesh/11-Nov-12

The National Board of Revenue's (NBR) online tax payment facility has received a poor response so far.

Since the launch of the e-payment gateway in collaboration with Sonali Bank, the NBR has received only Tk 1.40 crore as income tax from individual taxpayers.

The collection from customs and value added tax (VAT), which accounts for 70 percent of NBR's receipts, remains very low: Tk 28 lakh from customs and none from VAT.

Kanon Kumar Roy, a director general of NBR's Directorate of Inspection, said the amounts for customs duty and VAT payment are usually higher, say Tk 5 lakh and above, and hence the low e-payment turnover.

The absence of online banking facility by all banks makes it unfeasible to pay such big amounts through the e-payment gateway.

Additionally, NBR's slow preparations in the lead-up to the launch of the portal have failed to get banks that have online banking service on board with the e-payment initiative.

The acceptance of only Q-Cash cards by the web portal explains the overall underwhelming response.

Another reason cited by the taxpayers and stakeholders is the unreliability of the online server as the 'verify challan' option of the web portal does not always show up.

The NBR is yet to address the shortcomings five months after Prime Minister Sheikh Hasina had inaugurated the portal in an effort to reduce the hassles taxpayers encounter with the manual tax payment system.

Official of firms -- electronic payment processor Q-cash, Sonali Bank and software developers Datasoft and Technovista -- blamed the lack of coordination among the implementing and monitoring officials at NBR for these issues remaining unresolved to date.

"We are not comfortable with the system. It requires us to open accounts with Sonali Bank as not all banks have the online banking facility that allows bank transfers," said a senior official of a mobile network operator.

Apart from the problems, the NBR is yet to establish a central server for data hosting, and there is no help desk or call centre to answer to the taxpayers' queries and guide them through the system.

Currently, taxpayer's queries sent by e-mail remain unattended; the NBR's last response to taxpayers' queries was on June 9, according to the e-payment.

"I placed queries twice. But I did not get any feedback," said Md Abdur Rouf, a taxpayer who also gave his phone number for getting feedback.

“Later, I paid taxes manually,” he said.

"As far as I know, no initiative has been taken from the NBR to encourage firms to pay VAT online," said a senior official of Q-cash who preferred to remain unnamed.

Roy, who coordinated the development and launch of the e-payment service, said the NBR is working to get all banks on board.

"We have issued pre-paid cards for those who do not own Q-Cash cards," said an official of Sonali Bank, preferring to remain unnamed.

"The pre-paid cards also allow taxpayers to pay tax as much as they want as there is no transaction limit for a single entry," he added.

Mahfuzul Alam, who manages the software development for NBR in favour of Technovista Ltd, said the NBR has to speed up its efforts to bring all banks to the e-payment scheme so that all debit and credit cards can be used for tax payment.

Khandokar Khurshid Kamal, who now coordinates the monitoring of NBR's e-payment facility, said it takes time to stabilise any system.

"We will sit with the stakeholders to solve all problems by this month," he said.

Manjur Mahmud, chief operating officer of Datasoft Systems Bangladesh Ltd, said a central server has to be established, while all the software have to be brought under the same operating platform.

He called for dedicated help desk and supporting the professional groups -- tax lawyers, clearing and forwarding agents -- to popularise the service.

News: The Daily Star/Bangladesh/11-Nov-12