Officials ask for land documents as collateral

Many outbound workers are facing difficulties in getting loans from the Probashi Kallyan Bank (PKB) due to 'unofficial conditions' and indifferent attitudes of bank officials, migrant workers have alleged.

Although there is no mention about submitting land documents as a condition for availing any migration loan from the PKB, its different branches are demanding the same from the borrowers.

Besides, the PKB officials are asking the migrant workers to make government service holders guarantors of the loans. This requirement is also not mentioned in terms and conditions set for PKB loans, they said.

Talking to the FE, a large number of foreign job aspirants highlighted these problems with getting the loans.

Some of them said, it is almost impossible to get a loan from the specialised bank without lobbying.

However, officials of the PKB denied the allegations about the loan disbursement system and said because of manpower shortage, they could not provide proper services at its different branches.

Of the total 45 branches across the country, 30 are running with one manager and one office assistant.

The remaining branches also have no sufficient manpower.

The PKB officials, however, said the problem would be resolved shortly. After the bank's conversion as a scheduled bank, its services to the migrant workers will be expedited, they said.

Wishing anonymity, a migrant worker, who went to the Jamalpur branch of the PKB, said he faced sufferings as officials asked him for his land document and a lot of papers for a migration loan.

"Even I am forced to lobby for the loan," he said. Officials misbehave with poor and weak job-seekers, he added.   

He also did not get any grace period in repaying instalments of the loan as mentioned in the PKB terms, he said.

Ali Hossain, brother of a migrant worker, said they completed all procedures as per the requirements of the PKB. But officials of its Comilla branch refused to provide the loan to his brother without any land document and a government service holder as a guarantor.

"My brother needs Tk 450,000 to go to Qatar. At last, we collected the money from a village money-lender at a high interest rate," he mentioned

Milon, another outbound worker, said he went to the Narayanganj branch of the PKB to get a loan.

But officials told him that Oman-bound workers would not get any loan from the PKB. "I did hard work to collect all necessary papers," he added.

Some workers, who visited the same branch, also claimed they were forced to give Tk 10,000 each to an intermediary to get loans. The agent is employed by the branch.

Official statistics showed that less than one per cent migrant workers received migration loans from the PKB in the fiscal year (FY) 2016-17.

According to the PKB, the number of migration loan beneficiaries was 6,304 out of 904,297 who migrated abroad in the last FY.

The PKB started its operation in April, 2011 with a capital of Tk 1.00 billion (100 crore) aiming to provide collateral-free loans to overseas job-seekers and to give loans for rehabilitation of returning workers in income-generating activities.

Of the total fund, the Wage Earners' Welfare Board provided Tk 950 million and the finance division of the government provided the remaining Tk 50 million.

Migrant rights activists said it is very unfortunate that migrant workers are not getting due support from the bank.

If the PKB fails to provide necessary loans, poor workers will be forced to go to money lenders to arrange the cost of migration. The authority should take proper initiatives to check all irregularities in providing loans to the migrant workers, they suggested.    

Ovibashi Karmi Unnayan Programme (OKUP) chairman Shakirul Islam said the PKB was established to provide collateral-free and low-cost loans to the migrant workers but the bank has failed to meet the requirements.

It is a tough job for a migrant worker to submit land documents as many of them are landless. So, many workers will fail to avail the loans. The authority should check such a malpractice, he said.

He also said rates of interest against the PKB loans are very high. It is not suitable for workers as they are from lower-income group. The interest rate should not be more than 2.0 to 3.0 per cent, he observed.   

He also said returning workers usually can't fulfil the conditions set for availing income-generating loans of the PKB.

After turning of the PKB into a scheduled bank, it is necessary to make the terms on collaterals for income-generating loans simple, said Mr Islam.

The rate of interest is now 9.0 per cent on migration loans and 11 per cent on income-generating loans. The maximum limit of a migration loan is Tk 200,000 for one person.

Faruque Ahmed, secretary general of the WARBE Development Foundation, said it has become difficult to get loans from the PKB because of unofficial conditions.

A large number of workers, who applied for loans with the help of WARBE Development Foundation, failed to receive the funds, he added.

When contacted, PKB managing director ANM Masrurul Huda Siraji said he did not get such complaints so far. He said he would order investigation into various complaints.  

But the PKB maintains the condition on guarantor strictly to help recover the loans, he said.

He also said there is a manpower shortage in different branches. So, loan disbursement activities are being hampered. Already the central bank has issued a circular to employ officials in the PKB as per organogram of the bank.

He also said after conversion of the PKB as a scheduled bank, they will be able to expedite their loan services to the clients. Presently, the bank can disburse loans to only a few persons.  

Replying to a query, the PKB MD said all migrant workers are entitled to get migration loans. But the bank gives first priority to the workers whose visas are available online to check.

"So there is no reason to refuse a loan to any worker," he added.  

Since its operation, only 23,731 outbound Bangladeshi workers were given loans worth Tk 2.29 billion by the bank from fiscal year 2011-12 to 2016-17, according to official data.

Of the total beneficiaries, some 156 returnees received loans for income-generating projects at home. During the period, the bank recovered Tk 1.55 billion.

Meanwhile, the government recently decided to give Tk 2.50 billion to the PKB for turning it into a scheduled bank. The Wage Earners' Welfare Board has also given Tk 500 million to the bank to help raise its paid-up capital to Tk 4.0 billion.

Only 3.0pc CROs charged with managing exposures

A significant section of the country's banks and their governing bodies are not sure about what their major cyber threats are, a recent industry-wide survey on cyber risk governance has revealed.

The survey also found that 45 per cent of the bank boards do not know what the single biggest technology or cyber security vulnerability is, while 42 per cent of the banks do not know what their largest potential cyber risk exposures are.         

Around 76 per cent of the country's banks do not explicitly know legal implications of cyber risks for their institutions.

Even though cyber risk is included in the Risk Management Framework (RMF) of around 82 per cent of the banks, further insight reveals that such integration remains largely 'on paper'.

The findings have emerged during a cyber risk governance survey conducted recently on the Chief Risk Officers (CROs) of the country's banking institutions.

Leading banking research body 'Bangladesh Institute of Bank Management (BIBM)' conducted the survey.

It was found from the survey results that 58 per cent of the bank CROs responded with either a 'No' or 'Sometimes' when they were asked ' Is Cyber Risk considered explicitly as distinct Material Risk Type' in their institutions.

"This shows that although cyber risk is integrated in risk management at a policy level, in practice, this is perhaps often not the case", said Sajib Azad, Senior Advisor of BIBM.

Mr Azad, who brings with him experience of working with the European Central Bank and the Bank of England, conducted the survey along with Director General of BIBM Dr.Toufic Ahmad Choudhury.  

"Additionally, the 'Sometimes' response also tends to indicate that when cyber risk is discussed, it is discussed largely in terms of incident management or on an ad-hoc basis", he added.

Analysts also observed that the responses of the survey indicate the lack of depth in the overall cyber risk management of the country's banks.

For example, it was found that only 3 per cent of the CROs are charged with managing cyber risk exposures.

This probably shows that cyber risk is seen 'merely as a technology or IT risk' in our banks, experts said, which makes it challenging for the banks to identify the real business risk it poses.

Previously an overlooked topic in Bangladesh's banking industry, cyber risk issues are now gradually gaining attention after the US$ 101 million central bank heist of last year.

The survey on the Chief Risk Officers, however, shed a new light on the cyber risk framework and related governance issues within the banks.

The findings of the survey are set to be shared during the next Chief Risk Officers' forum of BIBM scheduled on August 30.   

When asked what is the most substantial challenge in improving cyber risk management in the banks, most of the respondents pointed their fingers to the 'limitations of the current system'.

In addition, 'access to the requited technical know-how' and most notably, 'senior management's interest' have also been identified as major obstacles.

"Perhaps lack of senior management's interest is a result of seeing cyber risk as an IT issue rather what it is: a critical business issue", said Dr. Toufic Ahmad Choudhury, Director General of BIBM.

"The fact that 48 per cent of the respondents do not know which systems not to bring back-up quickly further supports the theme that cyber risk is viewed narrowly as in IT risk and has limited traction with the wider bank and governance elements", he added.

As a way-out for the prevailing condition, experts called for developing greater awareness across the banking industry as well as developing a culture of taking pre-emptive action against cyber risks within the banking institutions.

"The first step in this regard is to develop a cyber security policy and crisis management plan", Mr Azad said adding that this needs to be collectively understood, taken seriously and enforced by the leadership.

"The critical thing is to create cyber security awareness among not only IT personnel of the banks but among all employees of a financial institution", Toufic Ahmed Chowdhury said. 

Ali Reza Iftekhar, Managing Director of Eastern Bank Limited, presenting a bouquet to Dr. Shirin Sharmin Chaudhury, Speaker of National Parliament for being a guest speaker of \'EBL Leadership Lecture Series\' program at EBL Capacity Enhancement Center in

Payments as well as the delivery of goods in international trade is challenging with huge involvement of risks. Risks in the international trade are mostly related to the trade payment and financing activities considering the fact that these are the major activities of international banking in Bangladesh. Most of the cases the risks are related to non-compliance of regulation or guidelines. In Bangladesh, trade services products are those services that are commonly offered from the 'Trade Services Department' of a bank. In broader sense, trade services products of Bangladesh includes products or services related to trade payment and trade finance.   
Many types of risks are involved in the trading of goods and some of these risks will affect domestic trade, they are generally amplified in international trade. The most common trade risks includes finance related risk, payment related risk, documentation risk, economic risk, foreign exchange risk, interest rate and price risk, crime and money laundering risk, buyer's insolvency/credit risk, buyer's acceptance risk, knowledge inadequacy, seller's performance risk, country risk, cultural risk, legal risk, political and sovereign risk and transit risk. Common Trade Risks in Banks are described below:
In LC operations, late payment has been found to be a common practice by the trade service providing banks. In spite of receiving compliant documents under sight LCs, the payments have been lingered which don not only harm the institutional reputation but also the image of Bangladesh. The applicants request the banks to lodge discrepancy notices to halt the payment momentarily on the grounds such as goods had not arrived or goods were of inferior quality. The applicants also approach the issuing banks to linger payment through issuing discrepancy notices in spite of the arrival of consignment. Banks are also cooperating with them in some instances which also inflate the confirmation charges of the LCs issued from Bangladesh. This practice creates huge country risk as well as reputational risk with counterparts.  
In the context of Bangladesh, there are instances where banks reject documents just for rejection and charges for the discrepancies as their foreign counterparts do. These are clear departures from the UCP morals. Such practices can simply make the trades costlier and burdensome to the consumers generating economic and other associated risks.
These practices along with sudden price decrease in global market are creating forced loan, rescheduling and converting non-funded liability into funded liability in Bangladesh. In some circumstances, banks also delay payment to protect their interest which is undesirable under UCP rules. And this scenario creates both credit risk/default risks and liquidity risk for banks also.  
For making the payment under local Back to Back LCs (denominated in FC) there are two alternatives for banks i.e. Nostro Accounts (using swift MT 202) or they can use the FC Clearing Account maintained with Bangladesh Bank. Many banks are utilizing the services of foreign correspondent abroad as the payments are affected through the Nostro Account which is maintained with them which results in FC outflow in the form of charges from Bangladesh just to gain in business with the correspondent agents resulting in higher revenue in the form of charges which may create legal risk and non-compliance risk as well.
In banking industry of Bangladesh, some instruments trade like LCs or guarantees are used for fraudulent or unethical practices in performing local trading activities. The issue of accommodation bill (payment without genuine consignment) related with shipment under local LCs is severe concern augmenting various risks including delivery risk of the consignments.
Most of the local banks in Bangladesh, for domestically transferred and transferable LCs transfer through endorsement on the back of the master LCs which raises the scope for fraudulent practices and forgery.       
As per BB Guidelines on Foreign Exchange Transactions (GFET-2009) banks are required to obtain confidential reports for opening of an LC on foreign exporters where amount exceeds USD 10,000 and USD 20,000 against proforma invoices and against intents issued by local agents of suppliers respectively. Banks are issuing LCs without obtaining credit reports only incorporating credit report clauses which is a sheer violation of the GFET and obviously raises the risks of both the issuing bank and the importer.
To retain the clients in this competitive market, some banks  (a few instance) are sometimes undertaking undue risks even bypassing the regulatory framework, e.g. financing by the Ads to the exporters through opening back to back LCs (deferred by 180 days) upon open account trade which could be extremely risky if the foreign buyers default or do not make payment. Mentionable, as the associated ADs are endorsing the transports documents (title to the goods) to the foreign buyers directly, it could prove to be very risky.
Insurance coverage is supposed to be offered by the importers in Bangladesh. Banks are supposed to ensure minimum insurance coverage of 110 per cent of importable at the time of opening LCs. But some banks open LCs are opened ensuring only 100 per cent of the importable. Hence, breach of Bangladesh Bank rules is very apparent creating huge risk exposure of the Bank.
In case of importing restricted items that require permission from the appropriate authority issuing banks are suppose to incorporate the documents as well as certain conditions. In general, documents are asked for but conditions are not incorporated exposing banks in documentation risks.
Some banks make payments as per the requirement of LCs but goods never arrived and banks are in trouble. Such instances are found where sight LCs is issued with TT reimbursement clause by a Bangladeshi bank and the scenario exposes huge risks.
Risks also prevail in banks in the area of non-realization of export proceeds. Banks are expected to behave responsibly and report to Bangladesh Bank within stipulated time. But there are instances where ADs of banks do not report to Bangladesh Bank and also banks cooperate with the exporters in fraudulent activities holding reporting risks also.
As per the directives of BB, the banks are absolutely prohibited from engaging themselves in transactions with speculative motives in respect of FX market but some treasuries of banks hedge the risks of the clients through options and so not report to evade the possible difficulties. Transactions on option require case to case approval from Bangladesh Bank. Earning profit and collection of charges are the main objectives behind these malpractices resulting new risk dimension for the entire banking industry.
Sometimes banks in Bangladesh do not renew the guarantee requirement for continuing with inward remittance services. Some banks have undue practices in mobilizing inward remittance through exchange houses, for which Bangladesh Bank can duly penalize them. In maintaining FX accounts, some irregularities are there mainly due to the knowledge gap of the bankers.
Four techniques of Trade Based Money Laundering (TBML) i.e. over and under invoicing of goods and services; over and under shipment of goods and services; multiple invoicing; and falsely described goods and services.  In Bangladesh over and under invoicing of goods and services, and falsely described goods and services are common in use for money laundering. To hide or profitable use of the proceeds of crime through illicit outflows of funds from Bangladesh the criminals use over pricing in imports, generally low duty item like capital machineries, raw materials and spare parts and under pricing of export. For gaining government benefit like cash incentives, subsidies there are tendencies of over pricing of exported items wherein collected wage earners' remittance is used to fill the rest of the export proceeds.
Sanctions clause is commonly found in the LCs received from abroad. Now-a-days the local have also started inserting Sanction clause in their LCs issued from Bangladesh which do not match with the expectation of the approach of ICC. These types of clauses may offer negative perception at the initiation of the transactions.  
International trade exposes exporters and importers to substantial risks. To mitigate these risks, firms can buy special trade finance products from banks. Major ways to mitigate trade risk in banks are described below:
Minimising risks through precautionary measures: Importers and exporters can take precautionary measures to avoid or minimize some trade risks wherein banks can play a pivotal role. For example, in order to avoid quality issues before they arise, importers should research the quality of the products and verify the general reputation of the seller before the placement of an order.
Negotiating the right type of payment and credit terms: The question of when and how a payment is made will determine how the counterparty risk is distributed between the exporter and the importer. In this sense the negotiation of favourable payment and credit terms or the use of risk mitigating payment instruments is an important element of the management of counterparty risks in trade.
Introduction of modern communication and service rendering devices in the foreign exchange department: In various facets of import financing, modern IT devices should be introduced for increasing overall efficiency of the service. Communication of letter of credit to the negotiating banks, negotiation regarding LC conditions, conformation of letter of credit and payment of import bills are the areas where modern IT devices should be employed specially in those banks where there exist room for improvement.
Developing hearty banking relationship with foreign banks in important parts of business world: For handling import trade systematically and effectively, there is a need for developing sound relationship with foreign banks which can operate as negotiating banks for the bank issuing letter of credit. This relationship building can facilitate prompt handling of import operations including the payment aspects.
Strict adherence to Bangladesh Bank guidelines in processing import financing: The foreign exchange department of the bank must follow the Bangladesh Bank guidelines strictly to avoid any future problem in the management of import financing. Bank officials dealing in foreign exchange must be thoroughly conversant with these rules and in evaluating application for letter of credit. All points must be examined with utmost care and prudence. This may also help to protect national interest.
Strengthening advisory services by the bank for the new and inexperienced import firms: New and inexperienced import firms experience problems in handing various aspects of import financing. These firms need sound advisory services from banks to handle all technical aspects precisely. Bank officials in the foreign exchange department can work as helping hand to assist these firms. For this purpose, technically sound team must work in the advisory cell of the foreign exchange department of the bank.
Credit insurance: Credit insurance is an alternative to letters of credit, which can be expensive and time-consuming. Credit insurance protects the exporter from the risk of default by the importer. Credit insurance can cover specific circumstances such as the importer's bankruptcy, refusal to pay or country risks such as political upheaval. It is possible to insure all of a supplier's clients or simply specific customers or transactions.
Factoring: Factoring is limited as a mitigation instrument for trade risks in Bangladesh. Factoring firms that offer international factoring and if non-recourse factoring is employed the factor takes on the credit risk of all trade receivables which can be initiated in banking industry of Bangladesh
Forfaiting: Forfaiting is carried out on a non-recourse basis because the instrument sold is an obligation of the customer which also enables exporters to trade in higher risk countries although the higher risk will be reflected in the cost. Forfaiting can be expensive to arrange as the company will have to pay for the financing arrangement and the guarantee, henceforth proper care should be adopted before taking this strategy.
Supplier finance: Supplier finance, also known as reverse factoring, is initiated by the buyer (not the seller), typically to extend payment terms without damaging the supplier relationship or the ability of the supplier to deliver in time. In supplier finance, a bank in Bangladesh can pay the exporter as soon as the importer has confirmed the invoice. The bank will be repaid later by the buyer. Supplier finance can be offered on a non-recourse basis, which means that the exporter is not liable for non-payment by the importer.
Both exporters and importers have to decide which risks to tolerate and which risks to manage. Ultimately a cost-benefit analysis must determine which instrument is best suited to mitigate the identified trade risks. Hence, the banks in Bangladesh can play advisory roles in expanding trade literacy among the traders which will ultimately benefit them in handling trade business. Moreover, a company's specific situation with regard to financing needs and customer relationships must be taken into account while addressing the trade risk mitigation although in most cases not all trade risks can be mitigated. However, all required strategies must consolidated to obtain both short term and long term benefits in international trade business for a forward moving country like Bangladesh.
The writer, a banker by profession is a Certified Expert in Risk Management (CERM) from Frankfurt School of Finance, Germany. The views expressed in the article are the writer's own and not necessarily the organization he represents.

The Bank of England has picked senior civil servant and Treasury veteran Sir Dave Ramsden as its new deputy governor for markets and banking, it said Thursday.
The appointment of Ramsden, 53, brings the British central bank's interest rate-setting Monetary Policy Committee back to its full complement of nine members.
Ramsden, who led government work on whether Britain should join the euro at the turn of the century, has been a Treasury representative at MPC meetings for a decade.
"I am honoured to be joining the Bank and to be given the opportunity to contribute to the Bank's mission to maintain monetary and financial stability, at such an important time for the UK economy," said Ramsden, who will take up his role in September.
Back in March, the BoE's previous deputy governor, Charlotte Hogg, resigned after failing to declare that her brother worked for commercial banking giant Barclays. She stepped down just two weeks into the job.
Sir Dave joined the civil service in 1986, subsequently joining the Treasury in 1988 and currently acts as its chief economic adviser.