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MASSIVE SCANDAL TO HIT BANK OF PUNJAB - kamranACA - 06-21-2007 Dears, A top story by Jang group is being copied hereunder for the knowledge of forum members. Regards, KAMRAN .......... ........................ MASSIVE SCANDAL TO HIT BANK OF PUNJAB By Ansar Abbasi ISLAMABAD The Bank of Punjab (BOP) is about to be hit by a massive scandal, a unique fraud that involves billions of rupees. The State Bank of Pakistan has expressed its great concern over the Bank’s “system and controls”, terming them “quite weak” while the internal audit of the Bank has repeatedly cautioned the management on the huge facilities offered to certain companies. The recipients of the huge loans include owners of some companies that do not exist at all. In other cases, fake identity cards were used and over-evaluated properties were pledged as collateral. A report submitted by the General Manager Audit to the bank president on May 25th this year revealed that the bank, instead of listening to earlier warnings, released more money to such companies with which it was supposed to be careful in its future deals. The GM Audit Muhammad Hanif writes, “This is a third consecutive report in the series of Audits conducted for the business deals with this group and its allied names (i.e. Haris Steel, etc). Given the serious, risk intensive irregularities pointed out in the aforesaid Audits on November 7, 2006/December 1, 2006 & 23-02-2007 (Tufail Road Branch), the overall conduct of this relationship, in fact, warranted a more cautious note for the Bank in its future deals with them. It is, however, observed that the Bank’s exposure has instead increased in multiple during March/April todate.” The audit of the inland L/Cs opening and bills discounting facilities extended to various customers was conducted at Corporate Branch, Lahore, Tufail Road Branch, Lahore, and Main Branch, Lahore. Bank sources said that irregularities worth Rs 6-8 billion were committed at the two of the above three branches of the bank alone. These sources also claim that some influential people were involved in what is dubbed by these sources was “rip-off” of ordinary people’s money. The bank management is, however, reluctant to talk on the issue. Despite repeated efforts, no one was ready to offer the bank’s version on the story. The bank president was said to be abroad. The presidentÕs mobile and residence numbers were dialed but there was no response. The MD of the Bank, Haroon Aziz, was also contacted at his office number but he did not return the call. The same was the case with Bank’s country head corporate credit Khalid Qayyum. The GM Audit, Muhammad Hanif, when contacted, confirmed the report. When this correspondent read out selected contents of his report, he said that irregularities were a routine in the banking sector. In his report, a copy of which is available with this correspondent, Hanif said that facilities being availed by Harris Steel and its Allied Accounts were intensely audited and the irregularities observed were highlighted as per audit reports of November 7, 2006 and December 1, 2006 to address audit comments like bills discounted under BOP L/Cs, by BOP branches; bills discounted under other bank L/Cs, without seeking FIRMU (financial institutional risk management units) allocation; and bills discounted against third party (Allied Group Accounts) acceptances, etc. But, the GM Audit pointed out that the Credit Risk Management Division (CRMD) of the Bank issued Credit Bulletin No 035 (Revision I) on December 05, 2006, which was in particular supportive to the fore stated customer, whose negotiation/discounting of documents under BOP L/C by another branch was allowed and FIRMU approval requirement was done away, irrespective of the size of exposure. However, FIRMU approval for documents belonging to Allied Group accounts was prerequisite for approval by CCC (Central Credit Committee). “To benefit from above change, several Proprietorship Accounts were opened at Tufail Road, Corporate and Main Branch, Lahore, which on sample based scrutiny have been found short to meet “KYC” (know your customer) requirement. Audit feels that a maximum exposure limit must have been prescribed in the aforesaid circular instead of an open end permission....” The audit report also revealed that the ID Cards submitted against borrowing accounts with RF (running finance) facility upto Rs 20 million and L/C limit upto to Rs 15 million were fake. The report said that Nadra had confirmed that these ID cards were fake. “This also reflects sheer negligence on the part of the branches and credit processing levels to be sure that the persons whose accounts were opened or who were being given direct funded facilities and indirect facilities were genuine and realistic.” The report added that two ID cards carrying the same name, the same fatherÕs name and the same signature were found having different photographs at Tufail Road Branch, Lahore. The report asked “Why such irregularities were ignored and the accounts were still opened, is a deplorable and serious question?” Referring to some of the overdue liabilities in Main Branch, Lahore, the report pointed out i) Overdue acceptances of Rs 18,400 & mark-up Rs 3,661,982.95 of M/S Harris & Haider Steel; O/S (outstanding) acceptances of Rs 1,462,519,500 & Rs 921,137,000 of M/S Harris Steel & Haider Steel; Overdue RF facility of Rs 249.917 million of M/S Harris Steel along with mark up Rs 10.120 million since 31-03-2007. According to a source, the total securities pledged against these facilities are not even 30-40% of the total money disbursed/advanced. The report also identified the properties offered as collateral security and mentioned as commercial/industrial land in the name of various individuals. According to a source, all the pledged properties are actually agriculture lands and over evaluated. The report, however, admitted that the properties were owned by persons who were either guarantor/mortgagor or proprietor/partner in other group firms. While referring to different cases of fake ID cards and the respective companies, the report said, “Out of the above-mentioned parties, inland traders were previously dealing with Saudi Pak Bank, but no confidential report from the previous bankers of these parties were called for and made a part of their Credit Proposals initiated from the branch.” This is said to be a serious violation of the State Bank rules. On the basis of his analysis of the Bank record, the audit report revealed that, at least, seven persons had been running two proprietorship concerns, against which they were availing credit facilities, simultaneously. The outstanding liabilities against these persons, it is pointed out, stands around Rs 5.43 billion. The GM audit observed that Credit Bulletin No 35 (revised) provides open permission to discount/negotiate document under BOP L/C. “Such sanction should have been restricted to a maximum exposure. Despite that the exposure under IDBPs rose to the extent of Rs 5.439 billion, it did not attract a notice at any level of Risk Management,” the report wondered. The sources said that this was in violation of the State BankÕs prudential regulations that restrict a bank from offering facilities to a certain limit. According to a source, a person, Afzal, through his connections with the top bank management opened 16 companiesÕ accounts in Davis Road and Tufail Road branches and was able to get credit line worth billions of rupees. The source claimed that the bank management was trying to hush up the matter as the bank was already involved in another scandal of Crescent Standard Investment Bank Limited where the Bank’s total investment runs up to Rs 1.7 billion against a very thin line of collateral offered by CSIBL. “Interestingly, the BOP investment into CSIBL was done already when news of poor condition of CSIBL had started surfacing in the newspaper,” a source said. - BeL@L - 06-21-2007 ohh... how many people overall involve in this scandal? - um@ir - 06-22-2007 BOP has clarified.. please check out the news... http//www.thenews.com.pk/top_story_detail.asp?Id=8616