The sick loan portfolio in the banks started to swell as early as the mid-eighties, the same was not publicly acknowledged in the banks’ books. Throughout the nineties, huge lending decisions were taken in Islamabad instead of being analysed threadbare in the banks’ boardrooms by professional bankers. Handpicked persons having no professional background were placed in powerful positions in the banks and development financial institutions (DFIs). Adverse impact of these decisions on the viability of the banking sector was the obvious consequence. The once flourishing banking sector, making a positive contribution to the economic development of the country, turned into economic drain due to massive increase in the non-performing loans (NPLs) portfolio of the then nationalised banks and DFIs.
Bad loans were kept ‘evergreen’ by hiding NPLs necessitating bad loan provisioning, a technique known as ‘re-scheduling’ or ‘re-structuring’ was resorted to without any real justification. This sleight-of-hand accounting in which audit firms are accessories, allowed NPLs to be even shown as income generating and performing assets in the bank books. The outcome of such a practice, though not unexpected, was nevertheless shocking. When the State Bank of Pakistan (SBP) as the banking regulator finally took cognisance at the end of 1999, NPLs stood at a staggering Rs. 200 billion almost. Re-scheduling was translated into “wilful default” and declared a criminal act under the National Accountability Bureau Ordinance 1999 (NABO). Unfortunately the term “imprudent banking” is now frequently misused to provide a form of amnesty to bankers, allowing them to indulge blatantly in corrupt practices and get away with it. A few number of “wilful default” (re-scheduled) cases not having political support like in the Bank of Punjab, etc have certainly ended with NAB prosecution.
The trend of re-scheduling under political and vested interest has set in again with a vengeance, this situation deteriorating with over-spending by a couple of commercial banks vide what is cleverly labelled as “administrative expenses”. A former judge allied to the PML (N) and his son-in-law in Singapore, gives political protection to one particular crook. This was further complicated by the banks siphoning off money under “advertising and public relations” to offshore companies indirectly having Indian involvement, prima facie with RAW. Why does a bank need exposure in India without a footprint there?
Has NAB ever requested the SBP to forward the re-scheduled loans and/or done a proper scrutiny of their “administrative expenditures? Ensuring Presidential Regulations are followed, a grey area for misdemeanour exists because SBP’s inspection teams do not look too closely at what the banks spend excessively when comparing to similar size banks. One creative bank management, already exceeding similar comparison by 150-300% under many “heads”, has put the rest of their overspending malpractices under the “Others” category, 650% more in comparison. Who (and where) are their external auditors?
NAB must ask SBP under the provisions of Section 27 to conduct a detailed scrutiny of “administrative spendings” along with PPRA representatives. SBP must rein in their malpractices in award of contract and administrative spendings, instructing banks to follow PPRA rules in dealing with public money. The Pakistan Institute of Corporate Governance (PICG) is perhaps not working hard towards its job of teaching good corporate governance to Board Members and senior management of banks. Corporate executives lecturing at the prestigious PICG are also part of Board and Boards Audit Committees. Is they profess and teach more important to them or their “clubby” friendships of “you scratch my back and I will scratch yours”. The scid test of conscience will be whether they allow such highway robbery by a cheap crook and his minions accompanying him from Bank to Bank looting the public’s money.
Dependant on his boss’ good graces an unqualified CFO has to reimburse without internal audit his boss’ lavish travel expenditures and expensive parties abroad, etc. A qualified CFO would never permit it. The Board members can be advised by SBP to follow specific procedure and acquire requisite information in the proceeds of the Bank Audit Committees before signing the balance sheets, and not aid and abet white collar crime.
National Accountability Bureau Ordinance (NABO) allows NAB to extend its reach wherever public money is utilised, spent and used under any context either by civilian personnel through the public office holder or any financial institution utilising the money of the public at large. However the caveat is that after the NAB Amendment at the interaction of the SBP Governor, personnel of financial institutions can be investigated after due permission of SBP. There is a grey area for NAB exercising its own authority with due sanction by SBP or convincing the SBP that neither the external auditors or the SBP’s own inspection teams go into expenditures labelled “administrative” causing losses of billions of rupees of the public’s money.
The Senate Committee on Law and Justice was told recently by the DG Operations NAB that the working of National Accountability Bureau (NAB) came to a virtual halt in 2008 under PPP (are we surprised?) because “NAB’s strength dropped in 2008 due to which we had a huge backlog of cases, but now we have cleared some 70% of old cases,” NAB has reportedly filed 2,283 corruption references since inception of these 1,556 have been decided, 425 acquitted and 727 remain pending in courts. NAB has recovered Rs 263.89 billion; Rs.19.22 billion came as “voluntary return” and Rs.10.7 billion through “plea bargain”. The NAB official confirmed that former President Asif Ali Zardari has four out of the six cases pending against him. The corruption watchdog is similarly investigating cases against incumbent Prime Minister Nawaz Sharif.
Direct tax collection by FBR alone is approximately Rs 500 billion, estimated evasion is about 40% amounting to Rs 200 billion. NAB needs to exert in this area to help FBR and curb/prevent this particular curve of corruption. Under the clauses pertaining to tax evasion, NAB can support FBR, Revenue Department, WAPDA, SSGCL and SNGPL, Forest Department (lease defaulters in Sindh) and many others to recover defaulted amount where bills are overdue in billions.
Terrorism can only be eliminated by targeting the nexus between politicians, corruption and organised crime. Corruption must be targeted with all its manifestations, including financial misdoings, misuse of authority, cheating the public at large, money-laundering, breach of trust vested in various positions and living beyond legitimate known means of income, tax evasion. White collar criminals who cover wilful default of loans and indulge in exorbitant, lavish and unjustified expenditure must be made examples of and sent to rot in jail along with their associates.
