Good governance in banking sector: A myth?

Scarcely our banking sector had time to recover its equilibrium unsettled by the Hallmark scam when it was further undermined by the shuddering revelations of irregularities by the BASIC Bank. The bank's disbursement of loan worth of Tk 30 billion has received serious condemnation from the Bangladesh Bank. The staggering amount was advanced in irregular manner and about 84 per cent of the irregularities was rooted in just three branches: Gulshan, Santinagar and Dilkusha. Prior to that Ruposhi Bangla Hotel Branch of Sonali Bank Limited, the country's largest commercial bank (also a state-owned bank), disbursed illegally Tk 36.48 billion in loans between 2010 and 2012. Now the infamous Hallmark Group siphoned away the lion's share of the proceeds, amounting to Tk 26.86 billion. The money was embezzled by the means of local letters of credit. Only about Tk 4 billion was actually invested and the remaining amount could not be traced. It is not unjust for one to consider it as the biggest scandal in the banking industry as it dwarfs any other previous fraud cases. Bismillah Group made another "big time" by embezzling around Tk 3.92 billion from the state-owned Janata Bank, Tk 3.06 billion from Prime Bank, Tk 1.64 billion from Jamuna Bank, Tk 1.49 billion from Shahjalal Islami Bank and Tk 629.7 million from Premier Bank.
The financial wrongdoings were carried out between June 2011 and July 2012 in the form of fake export orders, letters of credit and accommodation bills. The scam took place under mutual understanding between officials of the group and the bank which is almost similar to the Hall-Mark loan scandal. Unfortunately, the list does not end here; in recent times several other frauds of similar fashion took place across the country. Among them (a) misappropriation of Tk 6.22 billion in Chittagong in 2007 through a false local letter of credit, (b) embezzlement of Tk 5.96 billion withdrawn without cheque from Oriental Bank in 2006, and (c) transfer of Tk.3 billion by forgery from five banks in 2002 drew immense public attention and condemnation. Destiny-2000 Limited made yet another ripple of unease by masterminding the embezzlement of Tk 38 billion before the eyes of the authorities. The damage the embezzlement caused was perhaps more far-reaching as thousands of marginal investors were thrown to the state of penury with all their savings gone. Now the question is: how long should we let the list grow, keep the loopholes unplugged and our economy exposed?
As the legendary tagline of Caterpillar® advertisement goes "There are no simple solutions but intelligent choices". Taking up on rampant misdoings engendered by rapacious interests in the banking sector requires bold and imaginative firewalling. The first line of defence in deterring any scam should be internal audits and supervision by bank's top management. For any fraud of big scale to be engineered, bank's top management has to be involved from the initial stages in turning blind eyes and subsequent cover-ups when alarms were raised and the whistle is finally blown, not to mention harassing or silencing the whistleblowers. The second line of defence should be the proactive stance of the bank's board of directors since the board should be involved in approving major loan decisions and reviewing audit findings.
Yet board members often claim to have no prior knowledge about the incidents. But by definition, the position they are holding requires all prior knowledge possible. The third line of defence should be the country's discreet regulatory agencies. But these watchdogs seem to be unable to conduct any reasonably effective supervision due to inapt leadership and bureaucratic overburden as well as, as some accusations go, willing participation, however indirect, in the scam. Now, this leads to the final and awkward observation that regulation of regulators is of the ultimate import, and that establishing good governance of any given sector entails an inclusive approach having within its fold the ultimate three organs of the national government rather than the ailing industry alone.
As the diagnosis is only half the treatment, the other half being the prescription, it is time for prescriptive layout:
* Effective supervision by way of sincere auditing.
* Appointment of competent and incorruptible board members.
* Cohesive and consistent overseeing by regulatory agencies.
* Sliming and trimming of the bureaucracy.
* Riddance of any political influence.
* Above all else, causing general increase in the cultural standard of the citizenry.   
In summing up, we can say that good governance in banking sector is a potent and viable concept rather than a myth, though some unfortunate incidents justifiably have raised the question. By dynamic modifications and streamlining of existing rules and regulations and their conscientious and meticulous application, good governance can be established in our financial sector.     
The writer is an MBA student, University of Dhaka.  [email protected]