‘Involvement of staff, directors key challenge’
KATHMANDU, MAR 12
Nepal Rastra Bank (NRB) Governor Yubaraj Khatiwada has said the involvement of directors and staffers in fraudulent activities is a serious challenge to Nepal’s financial sector.
Either bank directors and chief executives or staffers were involved in fraud in the majority of financial institutions that landed in trouble over the last six years.
The governor said the board is responsible for setting policies and strategies and guiding the management. “But if the board members are involved in fraudulent activities, who will put the bank in proper order?” asked Khatiwada at a conference on Financial Fraud organised by Nepal Banking Institute on Wednesday. “We have set certain eligibility criteria for the appointment of directors, but the problem is still there. It is a big challenge.”
Directors and CEOs were found involved in frauds at Kist Bank (now Prabhu Bank), Gurkha Development Bank, Nepal Share Market and Finance, Nepal Development Bank, Capital Merchant and Finance, Nepal Sri Lanka Merchant Bank, General Fin-ance Company, and Samjhana Finance among others.
Another problem the governor pointed out is the lapse in internal control system which has enabled unscrupulous staffers to take advantage of the situation for personal benefits. The multi million rupee fraud that took place at H&B Development Bank is an example. “If the board chairman and chief executive officer do not know what is happening, the chances of frauds are high.”
Khatiwada also pointed out increased technology-enabled frauds. “The challenge for the regulator has grown as frauds are not limited to papers, but now they are IT-based and fraudsters can break into the global financial system,” said Khatiwada. “It is a great challenge to the regulator. If a financial institution supervised by a regulator faces stresses due to such frauds, the credibility of the central bank suffers.”
At Himalayan Bank and Nabil Bank, staffers having access to customers’ card PIN numbers were found involvement in stealing money from the depositors’ accounts.
The governor said financial frauds take place when people want be rich overnight without making investment. “The greed plays the part,” he said.
Khatiwada stressed on the need for enhancing capacity of stakeholders, including bankers, central bank officials, valuators, police and judges to control financial frauds. “As a regulator, we should put in place a transparent and robust policy and regulation and increase their compliance by banks and financial institutions through rigorous supervision,” he said. Khatiwada said the capacity of the police and judges should also be enhanced to enable the police to file case at the court with strong argument and enable the judges to give verdict by properly understanding the gravity of the problem.
NBI Chairman Sashin Joshi said the financial system is under threat globally. As per a survey of Deloitte India, only 28 percent companies reported not having encountered incidents of frauds. The survey stated the financial sector is the most vulnerable, followed by real estate and social and the government sectors.
NBI CEO Sanjib Subba said the most difficult part is how and where to begin the investigation when frauds occur.
Source: The Kathmandu Post
