Assignment on: Bangladesh Krishi Bank and Its Products

Course Title: FIN 510: Bank Management

Prepared By: Paritran Talukder ID#201103098 Batch-1st, WMBA

Prepared For:
Md. Alamgir Hossen

Lecturer
Institute of Business Administration Jahangirnagar University

Date of Submission: November 2, 2012

Hallmark Scam
The BB found in an investigation that only Tk 460 million was used in lending by the Ruposhi Bangla branch of Sonali Bank, while the amount of deposit with that branch was Tk 9.94 billion as of March 31, 2010. (Rashid, 2012) Of the sum lent out, Hall-Mark Group received the major portion against its three letters of credit (LCs) for export, in violation of the existing rules and regulations, according to the BB officials. (Rashid, 2012) The Ruposhi Bangla Hotel branch of Sonali Bank provided loan facilities to Hall-Mark under pre-shipment credit (PSC) exceeding its head office- approved limit. Both the Sonali Bank headquarters and the branch submitted their replies to the allegations of irregularities to the central bank on October 13, 2010, saying that they have already brought down the limit of PSC as per their approved limit for such loans through "recovery of the credit from the party". I think this has been possible because of weakness in the management of the bank, weakness in internal oversight and control and, most of all, due to collusion of some insiders in the bank and outsiders. I see the situation also reflects the lack of governance and overall control of the Banks Board of Directors, because they should have exercised their supervision and control over such a huge amount of loan. Usually, banks conduct audit of a branch once a year, sometimes twice. So here it is important to look into how the Board of Directors as well as the management led by the managing director supervised the process of providing such a huge amount to a single company. (Ahmed, 2012)

Preventive Actions:
1) Financial audits should be performed to ascertain the validity and reliability of information; also to provide an assessment of a system's internal control. Bank should conduct audit twice in a year to control. 2) Reconstituting board of directors of Sonali bank, as they failed to take the right decision at the right time. People who have experiences in finance, economics, management of financial institutions and people who are not involved directly in politics, not loan defaulters, and people

with honesty and integrity, should be nominated to the Boards of all the state owned banks as well as in the private banks. 3) Exemplary punishment should be given to the officials who involved with loan scam, so that no one will dare to do it again in the future. 4) Even the accused politicians should be spared. 5) Continuous training of the risk management personnel have been proven as
necessary tools to avoid surprises in the banking sector in many countries. 6) Loopholes and weaknesses in the banking laws and regulations should be found out to stop fraudulence in the sector.

Bibliography
Ahmed, S. (2012, September 4). Hallmark scam: Cracks in management and monitoring systems of banks. Retrieved October 28, 2012, from The Daily Star website: http://www.thedailystar.net/newDesign/news-details.php?nid=248237 Rashid, M. (2012, September 5). Inland Bill discounting, Hallmark scam and beyond . Retrieved October 28, 2012, from The Financial Express website : http://www.thefinancialexpress-bd.com/more.php?news_id=142304&date=2012-0905