University of Dhaka

Faculty of Business Studies

Presentation on

Corruption in Banking Sector of Bangladesh

Course Title: Corporate Governance & Banker Ethics

Course Code: MPB-508

Submitted To: Submitted By :

Prof. Dr. A R Khan Shaqif Hasan Sajib

University of Dhaka ID: 51732009
Master of Professional Banking

Submission date: 17-11-2017

 What is Corruption in Bank?

Corruption in relation to the Banks generally refers to manipulation in

the Books of Accounts, fraudulent encashment of negotiable
instruments, unauthorized handling of the Securities pledged or
hypothecated to the Banks, embezzlement, misappropriation of funds,
pilferage of cash etc by the Bank employees, account holders and also
by third parties. Corruption and fraud are mostly happening in the
banking sector due to the direct/indirect influence/favor/support by the
powerful people of the society.
 Features of Fraud
 It is Deceitful

 It is Intentional

 It breaches Trust

 It involves Losses

 Concealment of Fact

 Appearance of Outward Respectability

 The causes of Corruption
 Absence of social Condemnation;
 Malafide Intention;
 Willful deviation from Laws and Practices;
 Degradation of overall Moral Values;
 Management inefficiency to Withstand Pressure;
 Procedural Lapses/Bottlenecks;
 Organized Crime;
 Corrupt Managers;
 Employee Scams;
 Financial Misstatement;
 False Accounting (e.g., bonus schemes);
 Financial Frauds;
 Computer Hackers;
 Any other significant Corporate Abuse.
 The driver of Corruption
 Limitation of Audit
 Unusual Circumstances
 Financial Misstatement
 Non Cooperation
 Non Existence of Good Governance
 Abnormalities in the Financial Statements
 Abuse of Information Technology Security
Corruption prone Areas
 Loans & Advances
 Deposit Accounts
 Remittances
 Inter-Branch Suspense Accounts
 Clearing
 Nominal Accounts
 Foreign Exchange Transactions
 Lockers & Safe Deposit Vaults
 Cash Shortages
 Recent highlighted Corruptions
 Basic Bank
Bismillah Group
Hall-Mark Incidence
Cyber-Crime
 ATM card skimming
 Bangladesh Bank Heist
 Basic Bank
Bangladesh Bank, for example, has detected irregularities in disbursement of
loan by BASIC Bank. This bank has disbursed loans of Tk 60 billion (Tk
6,000 crores) in three years out of which Tk 30 billion (Tk 3,000 crores) was
advanced in irregular manner. Loans of Tk 25 billion (Tk 2,500 crores) were
given from three branches. These loans were given without any proper
system. Names of the loan recipients have been published in a newspaper.
Names of the branches are Gulshan, Santinagar and Dilkusha. These loans
have become a burden for the BASIC Bank. The officials responsible for
such loans were not taken to task rather they were promoted.
 Bismillah Group
Bismillah Group, a terry towel producer, allegedly swindled Tk 1,100 crore from
five commercial banks showing fake documents. According to a Bangladesh Bank
report, Bismillah Group swindled about Tk 1,100 crore from state-run Janata Bank
and four private commercial banks—Prime Bank, Shahjalal Bank, Jamuna Bank
and Premier Bank—showing fake export documents, taking government’s cash
incentive to open business firms abroad and with accommodated bills through
Letters of Credit (LCs). The business group swindled Tk 392.57 crore from Janata
Bank, Tk 306.22 crore from Prime Bank, Tk 163.69 crore from Jamuna Bank, Tk
148.69 crore from Shahjalal Bank and Tk 62.97 from Premier Bank.

6%
14%
37%
Janata Bank
15%
Prime Bank
Jamuna Bank
28% Shahjalal Bank
Premier Bank
 Hall-Mark Incidence
The recently unearthed incidence of financial irregularities at the Ruposhi Bangla
branch of Sonali Bank Limited reveals that as on 31 May 2012 total outstanding
loans and advances related to international trade was Tk. 3,699.53 crore, of which
funded and non-fundedunauthorized loans and advances was Tk. 3,606.48 crore.
These unauthorized bank loan facilities were given by the General Manager and
Assistant Manager of the branch to Hall-Mark Group (Tk. 2,667.45 crore), T and
Brothers Group (Tk. 685.63 crore), Paragon Group (Tk. 144.44 crore), DN Sports
Group (Tk. 28.54 crore), Nakshi Knit Group(Tk. 65.3 crore), and others (Tk. 15.12
crore).
 Magnitude of the Hall-Mark Scam
Tk. 3,606.48 crore is equivalent to:
320.6 per cent of Sonali Bank’s paid up capital!
6.6 per cent of Annual Development Programme (ADP) of FY2012-13
15.9 per cent of allocation for social safety net programme in FY2012-13
38.6 per cent of allocation for health in FY2012-13
16.8 per cent of allocation for education in FY2012-13
0.3 per cent of projected GDP of FY2012-13
15.0 per cent of the finance requirement of the Padma Bridge
42.9 per cent of the envisaged support by the World Bank for the Padma Bridge
Cyber Crime
 ATM card skimming
The initial shock came after the revelation and complaints recorded because of abuse
of ATM machines fitting in with some banks and withdrawal from various private
accounts of a lot of cash without approval of the record holders.14 persons were
arrested by the police on 4 March, 2016. It included 12 foreign nationals who were
individuals from worldwide cyber-crime fraud-gang. They had deceitfully utilized
online networking media furthermore hacked information of individual clients.

Skimming is a procedure utilized by digital lawbreakers to duplicate individual

information from the magnetic strip on an ATM card. The criminal fits a skimming
device in the card slot of ATM booth. Once a card is swiped through a skimmer,
individual data contained on the magnetic strip is perused and put away on the gadget
or transmitted remotely to the criminals.

With the card information, they can lead value- based misrepresentation, make new
cards with the stolen character and individual data, or offer the cardholder information
on the underground market.
 Bangladesh Bank Heist
In February 2016, the stealing of $101 million from the reserves of the Bangladesh
Bank has raised question on the exposure of financial institutions to cyber-crime
groups. This incident have challenged the ability of existing mechanisms in
preventing such incidents. Besides, this theft signified the need for strengthening
the international co-operation in tackling cyber-crime.
 Lessons learnt and Recommendations
 Absence of Risk Management Policy
 Lack of Internal Control
 Political Baggage of the Board of Directors
 Inappropriate Appointment of CEOs and Senior Officials
 Shortcomings of Human Resource Policy
 Inertia for Automation and Management Information System (MIS)
 Dualism in the Regulatory Mechanism and Regulator’s Oversight
 Ensuring Cyber Security Governance
 Need for a Commission for the Financial Sector
 Conclusion
These incidents are not only a case of financial loss, but also a deep dent on the confidence
and trust of the customers of the banks. It is also not the loss of good will of the particular
bank only, but of the total banking industry. Such an erosion of reputation of banks could
have multiple chain effect including reduction of deposit in the concerned bank and fall of
share prices of the whole banking sector. This can also constrain the role of the banking
sector in catalysing the growth of the economy. Without radical changes in the banking
practices in the country such expectations may remain largely unfulfilled. Bangladesh
Bank has to bring back discipline in the banking system. The government will have to
cooperate in the process otherwise nothing will happen. Only professional people may be
inducted in the boards of directors. Sincerity of the government is crucially important.
Good governance in the commercial banks is the need of the hour. It is alleged that loan
default is not being properly reflected in bank accounts. This is a serious lapse and an
example of corrupt practice.