KS Tabrez, Managing Director of Dutch-Bangla Bank, seen with the cleft-lipped girls and boys at a plastic surgery camp of DBBL at South View Hospital at Mirpur Sunday.

News: The Daily Sun/Bangladesh/18-Sep-12

From left, Debapriya Bhattacharya, distinguished fellow of Centre for Policy Dialogue (CPD); Akbar Ali Khan, former caretaker government adviser; Mustafizur Rahman, executive director of CPD; AB Mirza Azizul Islam, former caretaker government adviser; Ahsan H Mansur, executive director of Policy Research Institute; and David Cowen, IMF mission chief, attend a dialogue organised by CPD on the economy and IMF-supported programmes, at BRAC Centre Inn in Dhaka yesterday.

The head of a visiting IMF team yesterday suggested greater authority for the central bank to govern all banks, both private and state-run, to ensure prudential management of the financial sector.

David Cowen, chief of the International Monetary Fund's team, said the amendment to the Banking Companies Act could be an important tool for strengthening the financial sector oversight.

"It's necessary for a well-managed supervisory and prudential framework," he said, urging the government to act on the issue.

He spoke at a dialogue on "State of the Bangladesh Economy, IMF Supported Programme and Future Outlook" at the BRAC Centre Inn auditorium in Dhaka.

The Centre for Policy Dialogue (CPD), a local think-tank, organised the programme.

The comments came as debates continue whether the banking regulator did enough to prevent the swindle of around Tk 3,606 crore from a Sonali Bank branch by Hall-Mark Group and five other companies.

According to the Banking Companies Act, the central bank has full control over private commercial banks and can act on its own if needed. But when it comes to state-run banks, Bangladesh Bank can only advise the government to take any action.

Without specifically mentioning the loan scam, Cowen said the government needs to see these banks as national assets.

There could be strains on the financial institutions and steps should be taken to mitigate risks, he said.

Cowen also urged the government to develop a bond market so that it works alongside bank credits and equity markets.

The IMF official said fuel price hikes are important for the country to contain subsidy costs and protect reserves, backstopped by greater exchange flexibility and possible monetary tightening.

He said the government should implement an automatic fuel price adjustment mechanism to avoid costly delays in oil price pass-through.

Still, the subsidies for energy could continue, he said. "There could be topping up and expansion of directed subsidy schemes such as diesel cards to mitigate impacts on the most vulnerable."

He said the government should look into the issue of fuel subsidies, as the budget is bleeding because of spending for the energy sector, cutting the country's expenditure for social welfare.

Cowen also said, apart from adjusting the prices of fuel and electricity, the government should look at the costs of energy.

"The government will have to see whether the cost is going up because of inefficiencies of BPC (Bangladesh Petroleum Corporation) and PDB (Power Development Board)," he said.

"Costs have to be controlled."

Cowen also joined the raging debates over quick rental power plants, which are blamed for putting a strain on balance of payments and higher electricity tariffs.

"We recognise the quick rental power plants are unnecessary. The government should revisit the issue because of higher costs of electricity generation."

Cowen also said private importers could be allowed to import oil as they can provide petroleum products at cheaper rates compared to the current framework.

At present, state-run BPC is the sole importer of all petroleum products.

During his keynote presentation, Cowen also spoke about four near-term risks Bangladesh will face: intensification of the euro area crisis, a sharp rise in global food prices, world oil price shock and pre-election pressures.

He said greater exchange rate flexibility could be one of the potential policy responses to deal with the impacts of euro crisis on Bangladesh.

Cowen said any sudden shock in the global food prices could deal a blow to Bangladesh's balance of payments. "Fiscal easing associated with measured food imports, open market sales and other safety net operations could be potential policy responses to the food price shock."

He also called for additional monetary tightening for addressing the second round effects of inflation, anchoring expectations, and offsetting the impacts of possible expansionary fiscal policy.

The IMF official also said a lack of fiscal restraint coupled with strained donor relations and tepid non-bank resource mobilisation could spur heavy government borrowing from banks, due to pre-election pressures.

"As a result, balance of payments and inflation pressures could re-emerge, undermining the recent macroeconomic stabilisation gains. Higher bank borrowing could add liquidity pressures at banks and crowd out private sector credit," he said.

Akbar Ali Khan, a former adviser to the caretaker government, said the government should look into inefficiencies in the electricity sector, which could cut cost of power generation.

He also said the problem in the country's financial sector, particularly at the state-run banks, is nothing new.

"We drew up the country's first public financial management in 1991, but we have not been able to solve the problem. It has remained as a trouble."

He said the scam at Sonali Bank should open the eyes of the government. "The government should immediately act on it, otherwise we will have serious problems."

AB Mirza Azizul Islam, another former adviser to the caretaker government, said the public finance management would not improve only by formulating good rules and procedures, as progress is intimately connected with the people who run them.

He also said the government does not have much time in implementing unpopular decisions such as raising the electricity prices.

Ahsan H Mansur, executive director of Policy Research Institute, said the Sonali Bank scam is the beginning of a long story.

He advised the government to conduct an independent and transparent audit into the state bank to assess the damage the politically appointed directors have caused to the bank's financial health.

The economist also called for disbanding the banking and financial institution division of the finance ministry, which has become a vehicle for establishing influences over the state banks.

In his presentation on the IMF-supported programmes, Debapriya Bhattacharya, distinguished fellow of CPD, said the IMF's external credit facility programme may have provided a helpful reference point when the government remains incapable of implementing its own programme.

"We were not able to impose fiscal discipline. The sad point is that we invited international financial institutions to impose discipline," Bhattacharya said.

He warned that Bangladesh's growth prospects would moderate along with a slowdown in investment. “One may expect a decline in GDP growth for a second consecutive year,” he said.

The economist also said the government is facing a “fast-closing window of reprieve”.

“It may have to settle for a second best option by holding on to macroeconomic stability with moderated economic growth, investment and employment,” he said.

Bhattacharya also said the recently exposed crisis in the banking sector indicates that the macroeconomic management and structural reform issues demand a greater politico-economic understanding of the current development challenges of Bangladesh.

Prof Mustafizur Rahman, executive director of the CPD, chaired the session. Amir Khasru Mahmud Chowdhury, a former commerce minister, and Osman Faruque, a former education minister, also spoke.

News: The Daily Star/Bangladesh/18-Sep-12

The central bank yesterday asked 32 Sonali Bank officials, including a former managing director, to submit their bank statements within 10 days.

The statements will be sent to the Anti-Corruption Commission for legal action if it is found that they have illegal incomes, a Bangladesh Bank officials said.

The names of these officials came up during separate investigations after the loan scam at the bank's Ruposhi Bangla branch was unearthed in May this year, he added.

They will have to submit statements of their savings, current, fixed or any other accounts and also statements of their loans.

Of the 32 officials, 17 have been suspended over their alleged involvement in the Tk 3,606-crore loan scam involving Hall-Mark Group and five other companies. Of the sum, Hall-Mark alone swindled Tk 2,686 crore.

Former managing director Humayun Kabir, deputy managing directors Atiqur Rahman and Mainul Haque (now officers on special duty) and general managers Nony Gopal Nath and Mir Mahidur Rahman are among the officials who will have to turn in their wealth statements.

These officials were blamed in a functional audit report prepared by Syful Shamsul Alam and Co, a chartered accountant and consultancy firm, for their roles in the swindling of public money from the Ruposhi Bangla branch in the name of loans against forged documents.

Meanwhile, ANM Mashrurul Huda Siraji, who was the general manager of the bank's head office when the scam was underway, said he was transferred outside Dhaka as soon as he moved to investigate the fraud.

"I sensed it in mid-January and formed a team to probe it. But the managing director [Humayun Kabir] transferred me just a day before the probe was to start," he told reporters yesterday.

He added he could serve only three months at the head office. He was first transferred to Comilla and then to Sylhet and then again to Rangpur by Kabir.

Siraji, now serving as general manager at the Rangpur branch of the bank, was interrogated by the ACC over the scam.

Five other Sonali Bank officials were also quizzed by the anti-graft body in connection with the swindle.

They are general managers Nousher Ali and Mahbubul Haque and deputy general managers Mohammad Musa, Altaf Hossain and Shafi Uddin.

The five were involved in the scam, an ACC official said, citing Bangladesh Bank and Sonali Bank investigations.

However, all of them dismissed the accusation, said ACC sources involved in the interrogation.

Including the six yesterday, the ACC has so far quizzed 23 Sonali Bank officials. The anti-graft body has also interrogated Hall-Mark Managing Director Tanvir Mahmud and his wife and group chairperson Jasmine Islam.

Despite several attempts, Kabir, who was MD from May 2010 to May 2012 when the scam took place, could not be reached for comment over the phone.

ACC sources said they would quiz five officials today in connection with the scam.

News: The Daily Star/Bangladesh/17-Sep-12

The Anti-Corruption Commission (ACC) yesterday sued five persons, including three high officials of Rupali Bank, for embezzling Tk 15 crore, as the amount was drawn from the bank against fake documents.

Two officials are from the bank's Dilkusha branch -- SM Atiqur Rahman, general manager, and Abdus Samad Sarker, senior principal officer, while the other is from its Gulshan-2 branch -- Mohammad Ali, deputy general

manager.

Earlier Mohammad Ali was posted in the bank's Dilkusha branch as an assistant general manager.

The two other accused are Abu Burhan Siddique Chowdhury and AHM Bahauddin, chairman and managing director of Everest Holdings and Technologies Ltd, a real estate company.

Jahangir Alam, deputy director of the anti-graft body, filed the case with Motijheel Police Station.

According to the case statement, the three officials of the bank in collusion with the realtor's chairman and MD swindled the amount, submitting fake documents between August 16, 2010 and January 1, 2011 from the bank's Dilkusha branch in the capital.

The statement also said the chairman and MD submitted a fake certificate of 'no liability' allegedly issued by a sub-registry office of Dhaka Sadar to the bank's Dilkusha branch, seeking a loan of Tk 25 crore on June 6, 2010.

Then the accused bank officials, without verifying the certificate, sanctioned Tk 15 crore.

News: The Daily Star/Bangladesh/17-Sep-12

Monirul Alam

---

Government borrowing from the banking systems came down slightly in the first quarter of the current financial year, thanks to rise in fund flow from other internal and external sources, Bangladesh Bank (BB) sources said.

As of 16 September, starting from 1st of July, the government’s bank borrowing declined by Tk 24.89 billion compared to the amount on June 30, BB data shows.

BB statistics showed that the status of net borrowing of the government was Tk. 918.27 billion at the end of last fiscal, which has come down to Tk 894.53 billion.

Fiscal analysts at the central bank said the government’s dependence on the banking system to meet budgetary expenditures has been reduced due of availability of funds from other sources.

“A steady flow in mobilising tax revenues, borrowing from external sources and a ‘good sale’ of national savings certificates together helped the government to lower its dependence on bank borrowing,” said a high official, who is involved in fiscal and policy analysis of the central bank, seeking anonymity.

The official, however, noted that, “It is though ‘temporary’ but a ‘good sign’. We can not predict that the government’s needs for cash would not increase in the coming months.”

“The government might not borrow any more funds from the banking system right at this moment as the tax-revenue mobilisation is going on in ‘full swing’ in this month (September), while the trend of obtaining loans by many government agencies from external sources have been increased recently,” said the official.

The official said loans worth over Tk one billion from external sources entered the country last FY and the fund flow has spread through this fiscal. He said the committee on external loans headed by the central bank governor sat once monthly to give approval to the loans.

According to National Savings Directorate, the net sale of savings instruments was Tk 4.8 billion in FY 2011-12. During the period between July-June of FY 12, the gross sales accounted for Tk 189.55 billion and encashment against the matured ones stood at Tk 184 billion.

In mobilising income tax, the annual average growth obtained by the National Board of Revenue in last five years was above 23 percent, said the BB official adding that “It is likely to rise in the current FY.”

Meanwhile, another high official of the central bank said the government’s requirement of cash by borrowing from banks will be reduced slightly as the cost of subsidy to the state-run power and energy sectors has been projected to lowering by hike in tariffs.

“The benefit of power and energy tariff hike is likely to come from this FY,” said the official.

In FY 2011-12, government’s bank borrowing has been exceeded by Tk 26 billion to Tk 225 billion against an initial (budgetary) target for Tk 189 billion, according to BB data.

A top official of a state-owned bank said the abnormal rise in borrowing by the government from the banking system was mainly due to the cash support to some the government agencies including Bangladesh Petroleum Corporation, Bangladesh Chemical Industries Corporation and Bangladesh Agriculture Development Corporation for respective imports.

In the budget for FY 2012-13, the government has set a target of borrowing Tk 223 billion from the banking systems, if other sources of financing complied fully. Hefty bank borrowing by the government was widely criticised by different quarters throughout the entire FY 12.

Economists and leaders of the business communities have been opposing the government’s huge bank borrowing as it is usually creates credit dearth in the banking sector and affect the credit flow to the private sector.

Banking industry sources said the Primary Dealer (PD) banks have been suffering from acute liquidity shortage due to high borrowing of the government and could not offer adequate loans to the private sector.

Source said investment in government securities means low-profit and banks are not much interested in it. By applying the regulatory empowerment, the central bank formally arranged auctions to collect the amount of demanded borrowing by the government by maintaining an auction calendar.

Banks usually purchase Treasury Bills and Bonds by participating voluntarily in the auctions. If the voluntary participation of banks could not fulfill the required amount, the central bank then forcibly sell the T-bills and bonds to the PD banks.

News: Daily Sun/Bangladesh/17-Sep-12