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Banking is a serious business
THE activities of
Ruposhi Bangla branch of Sonali Bank however put the heading of this article to
shame. The fact that a hitherto little known company like Hall-Mark group was able to successfully siphon of around Tk.2,500 crore over a two-year period underscores fundamentally weak controls and compliance within the bank. It points to putting personal interest above the interests of the bank and a general lack of adherence to proper approval procedures.
Ongoing investigation into the Hall-Mark scam has identified that the bank failed to follow some very basic fundamentals. At the time of opening an account, two steps are generally followed: KYC and Transaction Profile. KYC, i.e. "Know your customer," is the profiling a bank does to get the personal details of the client or in this case: name, address and nature of the business, area of operation, etc. Transaction Profile deals primarily with how many probable transactions each account would be doing in a year and what would be the yearly worth of such transactions. Furthermore, every branch of every bank is supposed to have an anti-money laundering compliance officer, who reports to a zone head — why weren't anomalies in transactions detected?
Had "due diligence" been observed at all these steps, then the scam could not have happened. In the aftermath of the scam, demands are being raised for heads to roll in Bangladesh Bank (BB). Yet BB has detailed guidelines on KYC, transaction profile and anti-money laun-
dering. Instead of shifting all blame onto the central bank, one ought to look at the inherent flaws our nationalised commercial banks (NCB) suffer from and take steps towards "plugging the loopholes" that create the opportunity for such scams to take place in the first place.
NCBs have always had their share of politically appointed directors. Politically nominated directors often lack adequate banking knowledge considered essential to safeguard the bank's interests. In many cases, these directors act as agents to serve the interests of "connected" companies. The net result of such political influence in the banks' internal affairs, e.g. improper loan
sanctioning to companies such as Hall-Mark and creating impediments to internal audit findings and BB's actions against cases of graft detected during audits only encourage the unhealthy practice of fraudulent activities.
In the case of Hallmark, there is no doubt that officials of Sonali Bank at various levels were involved. This was aided by the fact that most NCBs still rely on manual banking procedures, such as the manual posting of entries in books of accounts acts as a huge boon for fraudulent activities, for detecting anomalies in the books take much longer.
Pundits will debate for years on precisely who was principally
responsible for the Hall-Mark or Destiny debacle for that matter. Some measures need to be adopted today to restore public confidence in the banking system.
In the short and medium-term: • The Boards must be reconstituted with fit people. De-politicisation is a prerequisite. The government must have people with experience, preferably former standing managing directors on NCB Boards. This will have a twofold effect. First, it will save the government's image and second, it will bring back credibility of NCBs. These are the people who can effectively provide future guidance to operations and credit in NCBs;
• Next, rotation of staff in branches
must be made mandatory. Unless BB guidelines stating that no official can serve at the same desk and in the same branch for more than three years is implemented, such cases of graft will continue to recur;
• Another issue that requires scrutiny is whether officials are going on mandatory leave. Anomalies, if any, will have greater probability of detection when the desk is manned by another official during a particular officer's leave;
• NCBs need to work towards introduction of more automated procedures. Most leading private commercial banks have switched to technology-based banking practices to avoid problems related to graft. These include real-time transac-
tions, automated reconciliation, and electronic central database instead of traditional ledger-based record keeping;
• The central bank should introduce electronic reporting system instead of paper-based statements. Why? BB will get the requisite information on time, which will help it to take proactive measure to minimise potential malpractices.
In the long-run:
All the four NCBs should be transformed into true public limited companies with at least 50% of shares offloaded for general subscription. The floating of shares in the country's bourses will have a number of benefits:
• It will lead to more accountability of the management since public limited companies are mandated to hold one Annual General Meeting and shareholders will be free to ask questions;
• To go public, a lot of cleaning up will have to be done. Finances will have to be streamlined. There has to be a Chief Finance Officer (CFO), which will strengthen the bank's internal operations and accountability.
We should draw the line on the Hall-Mark incident. It is time that we take responsibility for our actions and be accountable. Let us not politicise the financial sector. However, if the political pundits of the land feel that they need to put in their ideas, they are most welcome to do so by having a say in the board by bringing in sustainable, longterm beneficial proposals. We need to put national interest first and keep our fundamentals in place. There must be consensus not to mess around with the banking sector. After all, we all ought to agree that banking is a serious business.
The writer is Assistant Editor, The Daily Star.