Vol. 4 Num 327 Fri. April 30, 2004  
Front Page

World Bank audit belies NCB figures
Finds default loan much higher, capital deficit wider than stated

A World Bank-funded special audit of the nationalised commercial banks (NCB) has arrived at quite different figures in a number of fields from those of the NCBs' own audits including much higher percentages of default loans and larger capital shortfalls.

Explaining the implication of the differences, a senior banker said, "[That means] the health of the NCBs are actually much worse than we are aware of."

Scrutinising the NCBs' balance sheets for 2002, the special audit has found a 50.8-percent default loan in Rupali Bank, which was reported as 30.5 percent by the bank's own audit. In case of Agrani Bank, the special audit puts the percentage of default loan at 41.6 against the bank's claim of 35.3, in Janata 37.4 against 29.7 and in Sonali 45 against 36.

Similar anomalies are found in calculation of the NCBs' capital shortfall. The special audit finds Rupali Bank to be suffering from a staggering capital deficit of Tk 11.1 billion, while the bank's own audit shows it to be free of deficit with a capital of Tk 0.7 billion.

In case of Agrani Bank the special audit calculates the deficit to be Tk 19.8 billion instead of Tk 2 billion as claimed by the bank and in Janata Bank Tk 30.6 billion instead of Tk 7.9 billion.

While Sonali Bank's own audit claims no capital shortfall, showing a Tk 0.9-billion capital, the special audit digs out an abysmal deficiency of Tk 90.9 billion.

As part of the government's ongoing NCB reforms, the finance ministry last year appointed chartered accounting firm SF Ahmed & Co as auditor of Sonali Bank, Rahman Rahman & Haq for Agrani Bank, A Kashem & Co for Janata Bank and Hoda Vasi Chowdhury & Co for Rupali Bank.

The special auditors evaluated all loans of Tk 1 crore and above disbursed by the four banks and reviewed their health. The findings will help the government, the WB and the International Monetary Fund (IMF) to design further NCB reforms.

The special audit reports were sent to the NCBs earlier this month. In initial and unofficial response, the banks disagreed with the findings. They say the differences might have arisen because the special audit considered many of their accounts as 'classified' but which they don't.

The banks however are yet to make an official response. Before that, the bank boards will discuss the special audit reports, a source at an NCB said.

The auditors on the other hand maintain that they made the calculations as per relevant and appropriate international standards of auditing.

Meanwhile, an IMF review mission has picked up the mismatch and conveyed the findings to the central bank and the finance ministry.

A Bangladesh Bank high official, requesting anonymity, said, "This difference is the result of two different sets of standards used in auditing -- one is international and the other local and contextual. Due to the socioeconomic limitations of Bangladesh, our auditing system has not yet adopted all the international standards. Through the ongoing reforms, we are gradually introducing the international standards in the banking sector."

Back in 1998, the government conducted another WB-funded special audit of the NCBs, which, too, detected major inconsistencies in these banks. That time, SF Ahmed, auditor of Sonali Bank, wrote, "A very large chunk of credit has gone to a few selected business houses. Only 98 borrowers, each owing more than Tk 50 million, occupy about 17.25 percent of the loan portfolio of the bank. Another 466 borrowers, each of whom owes between Tk 10 million and Tk 50 million, account for 24 percent of the loan portfolio."