Published in The Daily Observer on Thursday, 28 April 2016
Experts suggest BB intervene in curbing banks? window dressing
Experts have sought that central bank intervene in commercial bank activities to prevent them from window dressing.
Window dressing is a process through which banks tend to inflate their profits in their annual financial reports to show their better performance to clients, share holders, according to the banking sector.
Banks also adopt this process to draw the attention of rating agencies for a better ranking and for earning clients’ confidence as well.
“Without our consent no bank can prepare its final financial reports at the end of a calendar year, “a senior official at the Department of Offsite Supervision (DOS) at Bangladesh Bank said, preferring anonymity.
He said some commercial banks try to inflate profit by reporting less classified loans that helps them to show more profit.
Another senior DOS official said as per Bangladesh Bank rule, a tripartite team comprising independent auditor, banks’ staff and BB official checks draft report and if they find any irregularities in assessing bad debts or any other miscalculations they intervene to reregister the corrected information. He said banks usually take window dressing’s helps in showing less classified loans.
On window dressing, Centre for Policy Dialogue (CPD) Executive Director Mustafizur Rahman said, “It should be fully stopped as banks adopting this way try to show their good position in the month of December.”
He said in some annual reports it is being noticed that there is huge gap between figures in December and in February to onwards as they release funds in large amounts at the beginning of a new year and cannot recover the loans which were shown as non-classified in annual reports.
Rahman in this case insisted on formulating Financial Reporting Council (FRC) under the Financial Reporting Act, which will curb inflated figures.
He said banks should always be transparent in showing their real financial health and if they try to inflate it may cause sudden disasters.
A senior official at BB’s Banking Regulation & Policy Department (BRPD) said, “We are sending our teams to assess banks’ financial reports before making their balance sheets. We have so far taken some punitive measures against some banks and it is gradually paying-off.”
He, however, said BB also gives space to the banks taking financial meltdown, global crisis, political crisis and some other disasters into consideration because these crises affect the clients as well as the banks in making profit or inability of repaying loans.
He said, “We sometimes soft attitude to the banks’ and their borrowers at the time of crisis and there is no exaggeration in tightening policies.”
He said as per central bank’s guideline all the commercial banks are supposed to maintain their capital adequacy under BASEL-III from 2019.
The BRPD official suggested that it is high time for the banks to boost up their performance in curbing bad loans for good financial health and for achieving good ratings.