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Three state banks in multi-billion muddle
By Chandani Kirinde
Audits of three of the biggest state banks -- the Central Bank, the Bank of Ceylon and the People’s Bank -- have shown that thousands of millions of rupees have been lost by way of bad loans and uneconomic transactions conducted by them over the past few years.

In the Auditor General reports for 2004, it is revealed that the Central Bank had granted loans amounting to Rs 2,722.6 million from time to time since 1988 up to 2000 to thirteen finance companies to overcome their liquidity problems and the total in loan balances and accrued interests by December 2004 stood at more than Rs. 7,200 million.

But the recoverability of this amount is doubtful as almost all of these companies have become insolvent and no securities had been obtained by the Bank in respect of these defaulted loans, the report said.

The Auditor General also faulted the Central Bank for the loss of foreign exchange exceeding US$ 9 million (Rs. 900.00 million) by failing to take prompt action to stop the operations of the Pyramid Scheme conducted by a local promoter in collaboration with an international firm since 2002.

The AG noted that if prompt action had been taken, the illegal drain of a substantial amount of foreign exchange could have been averted.
The Central Bank has also failed to take action against the Commercial Banks which had provided facilities to card holders to send the money out of the country by violating Exchange Control laws, the AG said.

Investigations also revealed that about 1,000 credit card holders have violated the law by making payments on behalf of third parties but no legal action has been taken against them so far other than fines imposed on six offenders, he said.

After the scam came to light, the Bank had spent Rs 5.7 million to publish advertisements in the local press to educate the public on the dangers of the Pyramid Scheme, the AG noted.

The People’s Bank too had many deficiencies in loan recovery and continued to give loans to some heavy defaulters, he said. The largest loan customer of the People’s Bank -- a private group of companies owning Rs 3,027 million at the end of 2004 and at the end of the preceding year -- continued to enjoy increased credit facilities despite the deteriorating loan performance and weak security base.

The bank whose single borrower limit for 2004 was Rs. 500 million had granted advances to its customers exceeding the above limits and the bank had also failed to take action to recover outstanding loans granted to 32 private firms amounting to Rs 164.9 million.

The Bank of Ceylon too had suffered losses of millions of rupees by giving loans without getting adequate securities, the AG said. In 2004, the BOC had written off loans and accrued interest amounting to over Rs 6,600 million and also suffered losses amounting to Rs. 11 million by sale of investments and Rs 1.6 million by way of fraudulent transactions on credit cards.

The BOC had also introduced a new computer system to its branches and a company had been selected for the supply and implementation of Core Banking Software for 300 bank branches with the project to be completed by March, 2005.

The total cost of the project was US$ 5,457,920 but by January 2005 this system was introduced to only 17 branches and the total spent upto December 2004 was US$ 5,336,301, the AG said.

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