OCTOBER 15, 2016: DAILY SUN
This is very easy to prove the honesty and credibility of a person through making financial transaction with him or her. This is highly applicable for the financial institutions (FIs), such as bank and non-bank (Insurance, leasing company, investment company etc.). The confidence of the depositors and investment clients are the core safeguard of an FI. The basic job of an FI, especially a bank is to collect deposit from the clients by various mechanisms and to invest those deposits in the comparatively profitable and lower risk sectors and portfolios. The difference between the profit given to the depositors and the profit earned through investing those deposits is the profit of an FI. In addition to that banks and other non-bank FIs earn income through providing clients with various financial services. By the rapid and stunning development of human civilization the requirement of multidimensional financial services has also increased by manifold.
FIs have to manage various risks related with market, management and money. As the banks do business with the depositor’s money they have to create a strong capital base collecting from various sources before the commencement of its business in order to manage any kind of core risks. Moreover, the BASEL committee on banking supervision is putting immense pressure on the banks worldwide to maintain minimum capital requirement, supervisory review and market discipline very strictly under a framework, called International Convergence on Capital Measurement and Capital Standards. When an investment of a bank become very much vulnerable and can not generate any income or become classified then the bank is bound to maintain provision from its income that reduces its profitability. Even a single doubtful or bad and loss investment project could engulf the whole profitability and also could break down the whole capital base of an FI. In these circumstances that bank can not endure those risks and embrace bankruptcy.
The quality of a bank’s investment portfolios or assets is solely dependent on investing its funds comparatively in the profitable and less risky sectors. Selecting eligible and solvent clients, ensuring viability, feasibility of a project, perfect appraisal, rigorous monitoring and supervision and above all taking sufficient collateral securities and proper registration of those securities enrich the qualities of an investment. In addition to that proper valuation and revaluation of various assets, collateral securities help to decide the eligible capital of an FI which is the decisive factor for the policy makers in taking various investment and policy related decisions properly. If all those key matters are not handled properly, many wrong and risky decisions might be taken concerned with investment, especially in deciding single party exposure limit which is determined based on eligible capital of an FI. This is also helpful in making significant progress in the CAMELS (Capital adequacy-Asset quality-Management efficiency-Earnings-Liquidity and Sensitivity to the market risks) rating that indicates overall health of an FI.
But this is a harsh reality that many FIs do not bother to maintain all of those compliance issues properly. They try to maintain relationship with the clients merely as debtor and creditor but do not consider them as a business partner. Most of the investment clients are selected based on their political identity, social status, influence but not the credit worthiness of the client. Corruption and nepotism also play a vital role in this regard. In most of the cases the honesty, credibility and credit worthiness of a client is not considered, viability of a project is not taken into account, sufficient collateral security is not obtained and proper registration of the collaterals is not maintained.
Sometimes investment facilities are availed in the name of a company which has no existence in reality. After sanctioning investment proper monitoring and supervision is severely neglected. Even it is not monitored whether the fund have been diverted or not, whether the bill is an accommodation bill (buying and selling of banker’s acceptance and receivables utilizing goodwill without shipment of goods actually, especially among the sister concerns) or not. As a result of those misconducts the investment might be reduced to the state of bad and loss (BL) or it may be termed as the beginning of money laundering.
The most concerning matter is that the directors in many FIs applying various tactics in sanctioning investment and divert funds by their own name or disguising their name and identity or by the name of a fictitious company. A recent survey shows that out of Tk.6 lac crore investment market Tk.01 lac crore has been captured by the directors of various FIs. And most of those politically motivated investment and unauthorized diversion of fund by the directors eventually become highly risky and vulnerable. In order to manage this critical situation the FIs become bound to go for provisioning from its own income for keeping the depositors money intact. Moreover they have to maintaining SLR (Statutory Liquidity Reserve) and CRR (Cash Reserve Requirement) with the Central Bank which is mandatory for all scheduled banks. If it continues then in the long run the FIs shall fall into the shortage of core capital, supplementary capital and other tires of capital. This would certainly be very much alarming, if the shortfall in the minimum capital requirement is fulfilled by the allocation from the national budget or the taxes collected from poor people. In this way FIs become largely dependent on government’s deposit and allocation from the budget mitigating the shortfall of capital to uphold its existence.
Such an unfair subsidizing in capital shortfall inspires the willful defaulters and the collaborators by manifold. This is very much alarming for the economy as a whole in the long run. Such type of indulgence given by the sovereign fund and power generates Hallmark, Destiny and Bismillah group type of big financial scandals. Such type of many other scandals is still to be revealed and have been covered up in various ways. In this way the corrupted people have become confident that whatever the scale of their embezzlement they will eventually become at large. Because the chain of beneficiaries of that type of corruption is very long and the sovereign fund is always ready to heal the wound created by them.
This is very much tough for an FI to become profitable in this competitive market without state-of-the-art customer services and customer care in exchange of reasonable service charges. Getting smooth financial services is the basic right of the client. But in many cases, for example, the beneficiary of foreign remittance has to give bribe in getting spot cash. The investment clients also face the same in discounting, purchasing or negotiating various bills, in getting banker’s acceptance of foreign and local bills. Sometimes in collaboration with the client some bank officials help in over or under invoicing in foreign trade. In some cases many officials of a bank become bound to induct clients by taking various unfair means to boost up their performance under immense pressure from the management. Here the new clients are given various undue facilities and even cooperate them for committing money laundering type of activities.
There is a close relationship among money, honesty and credibility. If that honesty and credibility is wiped out from the mind of the officials, clients, directors and the managers of an FI then the collapse of that FI would become inevitable.
But we might be hopeful that most of the bankers and banks of our county are very much professional and honest. Most of the bankers render services in good faith and without any bad intention. There are also few banks and bankers in our country who consider rendering services to the client as worship. They do not think even in their dream to take bribe or commission against providing any services to the clients worth even millions of dollars. They consider such type of misconduct as grabbing or swallowing of fire. Moreover exemplary punishment is given in those institutions against any type of misconduct, if it is proved.
In order to find a remedy to this problem every scheduled bank and non-bank FIs must abide by the commands, rules and guidelines of a regulatory authority (Central Bank or so) without any excuse and only then the risks might be minimized. Moreover the trade unions must avoid any kind of political engagement fully. Government must show zero tolerance regarding financial compliance issues. Government should also stop subsidizing the capital requirement for maintaining capital adequacy ratio (CAR) of some FIs gradually. The regulatory authorities should be given maximum power and independence in taking stern action against financial irregularities and corruptions in any FI. Exemplary punishment must be given against all culprits and that might be the actual remedy.
The greed and undeserving ambition hiding within a human being always try to persuade them to be engaged in various misconducts. Lack of spirituality and morality seem to be the root cause for all these problems. Everyone wants to get rich, driving people and institutions to indulge in activities inconsistent with moral and ethical values. FIs should try to develop a culture with an ethical and spiritual tone that echoes constantly. The more it is developed, less will be the incidence of fraud and violations. Therefore, as the FI’s business is with the depositor’s money- they must overcome the test of honesty and credibility by 100 percent. Otherwise its goodwill and even the existence shall fall into a severe crisis.
© Copyright: Reserved by the writer (Noore Alam Siddiqui)
