Banks often transact after getting bad credit reports

Many commercial banks of the country are making foreign transactions without obtaining proper credit reports, resulting in fraudulence, a BIBM study revealed.
Banks often transact even after getting bad credit reports like poor rating, inconsistent line of business and absence of business houses' locations.
A team of Bangladesh Institute of Bank Management (BIBM), led by Prof Dr Shah Md Ahsan Habib, has made the survey on 'Practices of obtaining credit reports from foreign counterparts in trade services-Is it working?'
The study was presented at BIBM office in the capital's Mirpur area on Monday with its Director General Dr Toufic Ahmed Choudhury in the chair.
Dr Habib in the survey report said some 26 Bangladeshi exporters with products worth Tk 6.0 billion fell prey to a non-existent UK company.
"When two buyers placed orders to the Bangladeshi producers, they approached banks for opening back-to-back letters of credit (LCs) in China. After a scrutiny of the credit reports, it was found-'unable to locate the buyer' and also found-'high risk to failure in payment'," the BIMB report said.
"With those reports, some banks were unwilling to open the LCs. However, some opened LCs based on the local exporters' credibility. After final shipments to the UK by the 26 Bangladeshi companies, no payments were received," it added.
The BIBM survey showed that some commercial banks had been forced to open LCs before obtaining credit reports from counterpart importers or exporters which affected payments thereafter.
It also found that the delay in collecting credit reports by commercial banks leads to rise in import prices of different products here.
The absence of a central database for credit reports in Bangladesh causes misuse of foreign currency, the study mentioned.
Local commercial banks usually do not share credit reports, thus causing high prices of products, delay in shipment, fraudulence and misuse of foreign currency.
This takes place in 40 per cent cases for opening LCs and making foreign transactions, the survey found.
Even some branches of the same bank did not share the credit report of an importer as a local exporter approached them for opening an LC, it was mentioned in the survey.
Meanwhile, bankers at the discussion on the report said credit report collection charge is higher in Bangladesh.
They have made a plea to Bangladesh Bank to establish a central mechanism for bringing down the cost.
The BIBM study showed local banks have to pay global agencies $60 to $200 for each credit report.
The bankers stressed the need for a data bank of credit reports by the central bank and the association of banks to check fraudulence, money laundering, misuse of foreign currencies in foreign trade transactions.
BB Deputy Governor Abu Hena M Razi Hasan, who was present at the event as the chief guest, said the central bank has identified some unusual cases in the international trade.
"If the commercial banks fail to prove their capability in delivering foreign trade services, both the banks and the state will be in trouble."
"Bangladesh Bank is working to check money laundering. We've asked the banks not to make any transactions with shell banks. Measures have been taken to curb the malpractices on credit reports," Mr Hasan said.
A 'shell bank' is a financial institution that does not have a physical presence in any country.

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