Corruption in banks

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Mamun Rashid
A vernacular business daily has recently put up a good report on rising trend of corruption among bank executives. I remember having attended a discussion organized by a British bank in the mid nineties on `ethics in banking', where a senior banker took particular pleasure in noting- `in police department you try to find out who is honest, in the banks you try to find out who is dishonest'. Unfortunate though, few years down the line we got to see that particular gentleman capturing media headlines for encouraging massive corruption in the bank where he was the chief executive officer (CEO)) and in fact put the entire bank in `deep soup'. The bank afterwards taken over by the central bank lodged police case against him and so far I remember, a lower court even ordered him to be in jail for his proven irregularities. However, I was almost falling off from my chair few months back, when I got to know that person have been again appointed as the chief executive of a newly formed state-owned specialized bank. Therefore I was not very surprised to see the particular business daily commenting on rising trend of corruption among bank executives these days.
What is the nature of these corruptions? These are mostly staff-level corruption in connivance with the clients, suppliers or vendors. Who are the people indulging in these? Senior managers take kickbacks against favours provided through loan approvals or large loan sanctions, major supplies to the bank or construction and renovation of bank premises or large information technology (IT) or vehicle procurements. Junior staffs are found engaged in clearing frauds, transferring money from dormant accounts or creating fictitious accounts to transfer or siphon off money from other accounts or even banks' own money by creating false loan accounts or issuance of false credit cards. At times staffs in the clearing or customer service department take away money from clients account through signature frauds, check book frauds or forged payment instructions.
For the CEO mentioned above, it was helping a naughty client to draw one crore (ten million) taka each from thirty two branches under his own authority to avoid board approval applicable for large loans. For a second generation local bank, a group of junior officials ganged up under a `smart' person in granting multiple small personal and vehicle loans amounting to taka hundred crores in an Islamic banking branch, again avoiding the eyes of the CEO or credit committee and making best use of their IT knowledge. For a first generation private commercial bank it was done through issuance of fake credit cards and allowing large unauthorized withdrawals. For another large first generation private commercial bank, it was all about transferring money to the dormant accounts, activating them through issuance of automated teller machine (ATM) and of course siphoning off the money through several withdrawals. Many of my businessmen friends told me, how and why they had to pay for the higher education of the bank CEO's sons and daughters abroad.
You ask any bank CEO or chairman. I am sure they would come up with many more horrendous stories of staff corruptions- branch managers facilitating undue or inappropriate loans being granted, allowing loans to become past dues or contributing to increasing bad debts due to non -monitoring of approval covenants. If they are frank enough, the chairmen might also tell you how their CEOs have misappropriated money through buying cheap products or accepting low quality supplies at much higher price or taking away money by raising fake bills or excess payment to the suppliers. The stories may also include banks senior managers joining their clients in their business or importing the similar goods in the same ship or same consignment. If you are lucky, the board chairmen of the private commercial banks might also very secretly tell you, what they had to do to make sure seniors at the `watch dog' agency keep their eyes closed towards irregularities in their respective banks.
If you listen to the just retired CEOs of few private commercial banks, you can easily resolve why the inspectors from the `supervisory body' can't find irregularities in the private commercial banks. I was told by a serving CEO of a private commercial bank, how US dollar bills of greater denominations are being offered due to continuous depreciation of taka these days. For obvious reasons, I am not including expensive gifts bought or brought by the clients for the relationship managers, branch managers or CEOs of the bank. For the same reason, I have excluded expensive wedding gifts brought and presented by the banks at the wedding of the sons and daughters of the `watch dog agency' seniors. These are all open secrets.
The `Hallmark' had said it all for the state-owned commercial banks. Small depositors' money is being merrily thrown to the few large borrowers in exchange of large `paybacks' or favours. The owners or the directors are reportedly getting involved. Here the case is mostly large client driven at the cost of the `national exchequer'. State is the ultimate sufferer, therefore it is almost a `who bothers' case.
Can we do anything about such practice/s? Yes- for the private commercial banks improvement in the process guide, ensuring proper risk management, upgrading or updating the transaction manual, automation, strengthening the internal control, compliance and human resource management process can help the situation. For the state-owned banks and the watch dog agency, we have to go for a complete `overhauling', of those avoiding the recruitments, transfers and promotions on political consideration. We also need to allow the audit committees run independently, establish a respectable `reward and punishment culture' and ensure accountability of the seniors and the board. Automation can help here too.
(Mamun Rashid is a banker and economic analyst.
E-mail:mrashid1961@gmail.com)