TWO BANKS MERGE Kathmandu, 2 Feb.:NIC Bank and Bank of Asia Nepal (BoAN) signed a memorandum of understanding (MoU) for mergr Thursday. NIC chairman Jagadish Prasad Agrawal and BoAN Chairman Trilok Chand Agrawal signed the MoU. The move has to be appoved by the annual general meetings of the two banks. Nnnn FRAUD HIGHLIGHT RISK IN BANKING Kathamandu, 2 Feb.: Recent incidents of banking fraud involving the staff of banks and financial institutions ( BFIs ) have suggested increased operational risks in the domestic banking system, Prithvi Man Shrestha writes in The Kathmandu Post.. With the Nepal Rastra Bank (NRB) focusing on reducing credit risks such as loan defaults and bad corporate governance, these incidents of fraud have highlighted the risks at the operational level. In the most recent case, Kuleshwor branch manager of H&B Development Bank Niraj Nepal issued good-for-payment cheques worth Rs 870 million illegally. Besides, the bank also faced an additional loss of Rs 220 million as the amount which was supposed to be deposited in the bank’s account, was not actually deposited, but just in papers. In last two years, there has been a series of incidents, in which BFI employees were found involved in banking fraud. At Everest Bank, its Simara branch staff Manoj Chimoriya had issued good-for-payment cheques worth Rs 20 million in February 2012. The bank, however, recovered the amount and fired Chimoriya. The bank has filed a case against him in Hetauda Appellate Court. At General Finance, its former general manager Raju Kumar Pradhan misappropriated Rs 78.25 million in a similar manner. Similarly, an official of Himalayan Bank Limited (HBL) misused credit card funds. HBL deputy manager at the card department, Anil Bhakta Suwal, was found involved in embezzling Rs 56.7 million while settling Visa and MasterCard accounts receivables. He deposited the amount received from Visa and MasterCard in his own account, which instead should have been deposited in the bank’s account. HBL has recently started issuing new debit/credit cards, which was halted after identifying unauthorised withdrawal from depositors’ account through debit cards. NIC Bank and Ace Development Bank also followed HBL as they are associated members of Visa through HBL. These incidents have alarmed both BFIs and the central bank. Bankers said they have started taking measures to mitigate such risks. NIC Bank CEO Sashin Joshi said the banks have started giving necessary training to their staff, establishing accountability and stability, strengthening checks and control, enhancing internal control and reconciliation system, and investing in better IT system. “Operational risks were already there, but the banks didn’t pay adequate attention to such risks and the incidents of fraud took place,” said Joshi. According to Commerz and Trust Bank CEO Anal Bhattarai, the human nature of seeking faster professional growth, fast movement of human resources from one bank to another and massive branch expansion in a short period of time increased operational risks. “To reduce such risks, we have adopted know your staff (KYS) policy with a certain internal guideline,” he said. “We have also started concurrent audit — a system of auditing of transactions the very next day.” Central bank officials said frequent transfer of staff from one bank to another and giving responsibility of the entire branch to someone who has not been ‘tested properly’, resulted in the recent incidents of fraud. “The lack of proper internal control system also aided such frauds,” a senior NRB official said. According to him, the central bank has issued a guideline on information technology to address fraudulent activities through the use of technology. “The guideline has asked BFIs to conduct system audit regularly,” he said. In order to strengthen the internal control system with regard to good-for-payment cheque issuance, the central bank has told the BFIs to issue such cheques signed by two officials along with the stamp of the BFI concerned. In the case of H&B, such cheques were issued with single signature of Niraj Nepal. nnnn