More than two years have gone by since the detection of the massive Hall-Mark scam in the middle part of 2012. But the country's banking sector, apparently, has not been able to deal with the fallout from the scam effectively until now.
The Hall-Mark Scam (in fact, five more borrowers siphoned off more than Tk.8.5 billion from the Rupashi Bangla branch of Sonali Bank employing the tactics identical to that of Hall-Mark) came as almost a deathblow to the Sonali, the largest public sector bank. But some private banks have also suffered for they had purchased some inland bills carrying the seal of approval from the Sonali Bank.
The Inland Bill Purchase (IBP) is a common practice in banking system. Banks usually earn some money through the purchase of LCs at a discount.
Thus, the banks which had purchased the inland bills involving the Hall-Mark had no reasons to be worried about their funds for the LC issuing bank, in this case the Sonali Bank, had accepted the same, valued at Tk. 17.6 billion. The Sonali Bank has also made payments to as many as 20 banks against the IBPs.
But the Sonali has amended its position on the remaining unsettled IBPs of late. The state-owned bank says it has settled the IBPs having 'minor faults' and it will not settle anymore the bills with major 'faults'. The bank has also decided to make its clear to all as to why it has decided not to pay against pending 'faulty' IBPs.
What is more interesting is that it wants the central bank to play the role of an 'arbitrator' and help resolve the dispute. But the central bank is not interested. Being pursued by the private banks with funds stuck up in unsettled IBPs, it had earlier asked the Sonali to settle the IBPs by September 2016.
The governor of the central bank has taken a clear stance on the issue. While participating in a programme last week, he said in the event of any failure to make payments against the outstanding IBPs by the Sonali, the central bank would debit an equivalent amount from the latter's account maintained with it and disburse the same among the commercial banks concerned.
What the Sonali Bank is doing about the pending IBPs is against the normal banking practices. If a bank accepts an IBP from another bank, it will have to make payment against the bill to the latter. And the Bangladesh Bank, being the banking sector regulator, cannot give indulgence to any deviation from the usual practice.
The IBPs had played a major role in the Hall-Mark scam which , possibly, could be avoided, had the central bank been particularly cautious about the issuance of bills of acceptance against local letters of credit or payments for purchase of goods by the banks. It has taken measures to prevent recurrence of the malpractices like that of Hall-Mark. But substantial damage has already been caused to the banking industry by the scam of an unprecedented scale.
Bank branches are now required to take permission from their respective head offices prior to the purchase of IBPs both in local and foreign currencies.
Despite all the measures designed to stop any recurrence of Hall-Mark like scam, it is still hard to say with full confidence that the banks are now immune to forgery or fraudulence. The BASIC Bank loan scam is a pointer to that fact. None can be certain about the recurrence of dishonest banking practices. However, nobody minds any small-scale forgery or fraudulence in banking operations all over the world. But the big ones usually take a heavy toll on the industry because of the erosion in confidence of the clients and restrictions that are introduced by central banks following such scams.
The prevailing lacklustre performance of most banks in the country has much to do with the large loan scams that came following the crash of the stock market in the late 2010. Many tend to blame the 'turbulent' politics for the slowdown of the banking sector. But politics had turned sour on many occasions earlier in this country with virtually no impact on the performance and profitability of banks.
Despite a remarkable fall in deposit rates, the deposits with banks have been reportedly rising. It means that people have not lost their confidence in banks. Banks are not being able to invest their funds the way it should have been. This is a problem for the banks. But, maybe, there are a few deep-seated problems that are hurting the banking industry seriously. Should not the central bank and other stakeholders try to locate the problems and take appropriate remedial measures without any further delay?
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