By Rusiripala Tennakoon –
Is People Bank Going Easy With Depositors’ Funds USD 11 Million For Digital Banking And Luxury Vehicles Costing? Are Tender Procedures Followed?
Bank of Ceylon (BOC) and Peoples Bank (PB) are the two major state owned commercial Banks in this country. Both Banks from years occupied the envious leading position in the Banking Industry. Having successfully emerged from a capital inadequacy in 1992 they became the leading players in the country’s economy and as the principal commercial banking agent for the SOE’s and the Government of Sri Lanka.
Till the beginning of last year BOC & PB were placed No.1 and 2 in the order of pre tax profit generation classification among the commercial banks. While the BOC still maintains the No. 1 placement, the PB has gone down to the 4th position in the 1st Quarter of 2016 and to the 5th position in the 2nd Quarter. It is a notable decline which requires a focused attention mainly for the reason that it is a wholly owned state bank.
Due to reports appearing publicly the affairs of the PB had become the talking point within the financial circles and its Ex-employees had written to the Auditor General pin pointing questionable areas in the published accounts of the Bank. Reportedly the matter is now under a review and investigation according to the Auditor General.
Among the issues high-lighted are the following:
- Bank has failed to make adequate provisions in respect of retirement benefit funds in accordance with the actuarial determinations. This short-fall has been identified as an amount exceeding Rs. 13 Billion superficially while it is alleged by those raising the issue to be more complicated and grave than it appears, with the short-fall running to above 17 Billion, in real terms.
- Funds belonging to the contributors of a Widows & Orphans Pension scheme are carried in the books of the Bank without being shown as a liability.
- The income generation statistics show a poor performance in the commercial operations sector while the large share of the income is derived from Government of Sri Lanka operations in the Bank.
- Development oriented lending activities have not shown any marked progress over several years now.
- Loan-loss provisioning is manipulated by down playing allowing un-ethical rescheduling of over due facilities.
- The percentage of pawning advances reflect a major proportion of the total advances segment thereby evidencing under performance in the development oriented lending areas.
- In addition it has been pointed out to the Auditor General that the Bank has written off a huge sum amounting to Rs. 3 Billion from the profits as losses against the Oil Hedging transactions entered into by the Bank. No one has been held responsible for the colossal loss which involves depositors as well as public finds.
The PB over a period of 13 years, continues to engage the services of Senior Officials hired on contract with very high payments and emolument packages with no parallel else-where. Even the CEO/GM of the fully state owned bank is a contract employee, recruited many years ago for an entirely different job, he is paid over Rs. 2 Million per month as salary in addition to a massive comprehensive package of other fringe benefits which could be valued more than Rs. 1 Million a month.
This state of affairs is contributing to a gradual decline in the profits as well as healthy growth of the Bank leading towards serious consequential repercussions that would risk the stability of the Bank.
- The Bank has time and again resolved to fulfill the capital adequacy shortages by relying on grants and assistance from outside with the intervention of the Government and also by resorting to debentures from internally available funds held in trust by the Bank.
The sum total of liabilities on account of such maneuvers, are in the region of Rs. 40 Billions including the Rs. 10 Billion debentures. No special financial wisdom is required to consider this as a highly risky and volatile status for a Bank with a large portfolio of Depositor’s Funds.
But what is even more alarming and astonishing is how the bank is engaging itself in a massive spree of large expenditure in areas with no planned priorities. They appear to be highly extravagant, un-important and furthermore wasteful in the context of a high degree of austerity required under the current economic crisis the country is facing.
On 8th October, 2015 the Bank has approved a scheme titled “SIBS upgrade and digital banking module for PB” with a huge sum described as follows :
- Purchase Digital Banking Module from M/s. Silverlake Digital Economy Sdn. BHd at a total cost of USD 7,600,000/- with applicable taxes and the Bank will provide the vendor with a 40% of advance of the total cost against an advance payment guarantee.
- Purchase Core Banking Upgrade from M/s. Silverlake Sprints Sdn Bhd at a total cost of USD 3,400,000/- with applicable taxes and the Bank will provide the vendor with a 40% of advance of the total cost against an advance payment guarantee.
The total expenditure for this single project for procuring alone is costing USD 11 Million which is equal to SLRs. 1.6 Billion.
Besides the huge drain of foreign exchange to the country, questions are raised about the transparency issues and state sector tender procedures that have to be followed mandatorily.
The IMF in approving the last EFF for Sri Lanka has stipulated among other conditions the need for austere expenditure and minimize waste, while advocating far-reaching reforms for the SOEs.
It is interesting to find out how the treasury as the only stake holder evaluated this expenditure and how they satisfied themselves with the re returns from such a huge investment.
In the same Board Paper the Bank has approved a Card Management System upgrade at a cost of USD 935,000.
The Bank runs with a very rich and broad vehicle fleet which includes all types of super luxury vehicles. But the Bank has considered it urgent and important to order another super luxury vehicle at a cost of Rs. 31 Million (Inclusive of tax) for a brand new Land Cruiser vehicle for Chairman’s travel purposes. In contrast to the austerity drive about cars to be imported to the MPs on 8th February, 2016, the Chairman gets his Board to approve a new vehicle for his use from the Bank Funds.
Another large expenditure items is pending to be concluded for a new system upgrade for the backup records at a cost of Rs. 151 Million. According to the information available no open tenders have been called, offers have been requested from a few local dealers recommended by an international supplier. It is also reported that only one Company has responded to this offer.
The CEO/GM in the meantime has purchased a Brand New Benz car at a cost of Rs. 18 Million for his travel purposes.
A Bank, specially a state bank has to be over cautious in spending public funds specially funds belonging to depositors.
The profit figures however magnified they are artificially, do not justify extravagant and wasteful expenditure in the case of public institutions.
It will also be relevant to examine how the BOC continuing to remain in the prestigious No. 1 position among the Banks is conducting its affairs regarding similar matters.
*The writer is a former Chairman of BOC and commercial banker