Cheating in banking

Hallmark Loan Scam in Bangladesh involved a total amount of about Taka 4,000 crore which means 40 billion in Bangladesh Taka and half a billion in US dollar. The Finance Minister at one stage remarked the amount was paltry. He was right. Compared to a total outstanding loan of about Taka 4,610 billion (US$ 57 billion) in the banking sectors Taka 40 billion is small indeed.
But the booty was not a loan; it was a big theft, rather a humongous robbery, from Sonali Bank. Based on false documentary credits, the heart-thumping larceny was orchestrated primarily by Hallmark Group, a readymade garments industry, in collusion with a few bankers in the field level who were presumably guaranteed immunity by some high-octane powerhouses of the country.
The field level officers in this case were too small in their rank and power to handle such a big loan portfolio, defying the cap that limits lending to any single client and, more daringly, not caring a fig about the basic banking practices like simple auditing and day-to-day compulsory feedbacks to the controlling authorities.
I don't know what is happening to the fate of Tanvir Mahmud of Hallmark Group and Azizur Rahman of Sonali Bank, Ruposhi Bangla Hotel Branch! But I pity both of them. Something perhaps had gone amiss in the hippocampus regions of their brains. Their brains received wrong visceral signals.
They could easily wriggle out of the situation with a truckload of money scot-free, if only they were a bit more unwearied and surreptitious in their dealings. There are, much as one may be surprised, hundreds of Tanvirs and Azizurs lurking around in our country with impunity. They all are milking their country billions of US Dollars and stashing away their swags somewhere outside the border. How many Padma bridges could be constructed in Bangladesh if the planeloads of money thus cheated and siphoned off could stay at home?
In quest of those Tanvirs let's take a tour in the banking arena. As reported in the news media, the total amount of default loans, rather we should call them nonperforming loans (NPL), in the banks of Bangladesh is about Taka 48,172 crore (roughly Taka 482 billion/US Dollar 6.0 billion) or in other words 10.45 per cent of the total outstanding loans, according to Bangladesh Bank statistics. Total nonperforming loans of 10.45 per cent should not sound alarm bells in the community of financial analysts.
Of course, 5.0 per cent NPL is widely acceptable as standard. But the message that should send chills down the spine of a patriot is how recklessly the bankers manipulate their accounting to show their nonperforming loans in figures that are way lower than the actual ones.
Imagine a mango peddler. Sitting in a market, he keeps his mangoes nicely arranged in a basket to attract customers.  At the end of the day, he has to sift the bad mangoes out of the good ones and classify his mangoes as: the best mangoes that are easily salable, ones that are too ripen that must be sold even at lower than their cost price and the rotten ones that have to be trashed. Bankers also classify their products at the end of a year.
To a banker the performing loans are those best mangoes and the rest of the mangoes are nonperforming loans; and the rotten ones are simply dead or bad debts. Mangoes are publicly displayed that you can see, touch and smell before you decide to buy, unless otherwise the fruits are laced with formalin. But the performing and nonperforming loans of a bank are not so easy to discern.
There are 101 ways a banker can adopt to make a nonperforming loan look like a performing loan and can boast about his bank having the least nonperforming assets. One easy way is to overvalue the asset in the form of a piece of land (the land might be state-owned 'khash' land or a piece of land that is nonexistent) or just a piece of paper fictitiously typed with some words that sounds like a letter of credit or a Trust Receipt (as was done in case of Hallmark scam) that is kept as collateral security.
As long as the collateral is there against a loan the banker can easily sleep with a few drops of pure mustard oil put in his nasal passages and the borrower like Tanvir Mahmud may merrily go on milking his cash cow that is tightly leashed with the bank.
But at one stage such an artificial loan must be turned into a dead loan when all the exercises of enlivening the loan through repeated rescheduling and other banking juggleries like digging out a bad loan from its grave and morphing it into a new loan would be exhausted.
How will the banker then avoid facing the music when most of his loans will turn sour, yielding an astronomical increase in NPL percentage? Well, your banker is not stupid; he knows his job and he has his own leverage. When the borrowers like Tanvir Ahmed and swindlers like Azizur Rahman are in a plentiful supply and on top of that there are powerhouses to back him your banker will create new loans by throwing away money to Jadu and Madhu. The percentage of NPL in ratio to total outstanding loans will thus plummet effortlessly.
If a bunch of intrepid investigators or journalists, whose hands cannot be greased, could make a thorough survey in collaboration with some internationally reputed valuation companies to find out the real valuations of bank assets including those collateral securities (I call them smoky securities) I would not be surprised if the percentage of nonperforming loans shoots to 85 per cent.
During the 2008 financial crisis in the USA and the subsequent crises in other western countries that emanated from unbridled mortgages on home loans the assets left out for redemption were popularly termed as toxic assets. After all, there were some assets in the form of land and homes thereon the value thereof had a chance to go up over time.
But if one is to ascertain the value of the assets on the premises of which most of the reckless loans have been created in Bangladesh he should better call the assets, if any, 'some patches of cloud', not toxic.
Cumulative nonperforming loans  pull GDP (gross domestic product) down and affect the economy in a vicious way. NPL results in a loss of current revenue, necessitates high loan provisioning, erodes the bank's capital, hikes the loan prices and sparks liquidity and financial crises.
Compared to any other industries the contribution of banking industry to GDP is direct and tremendous. NPL wreaks havoc with a bank's credibility at home and abroad. A bank burdened by abnormal NPL will find itself deserted when a foreign bank will not trust it for initiating any international transactions.
The Finance Minister the other day glibly announced that Bangladesh will attain 10 per cent growth by the year 2018. Such announcement warms the cockles of our hearts. But how could he be so optimistic? Did the Finance Minister factor in the artificially performing loans, the dead loans pushed beneath the carpets and the future provisioning of Himalaya-sized bad debts while computing the future GDP growth?
When the Finance Minister of the next government or of the next of the next government will be shown the balance sheet of the country how will he save his face if he has to declare a negative growth?
Our banks, especially the state-owned banks, may survive for a couple of years by scheduling and rescheduling their assets or by sweeping their ever-increasing rotten assets under the rugs. But they will have to come sooner or later with their actual balance sheets when the rots under the rugs will bulge and infect the whole economy.
Alas! The mango peddler is still there with his basket full of colourful mangoes. But the mangoes are all toxic - those are plastic mangoes or at best green mangoes laced with formalin.
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