Elsie is not a girl

sehgal2.jpg (10664 bytes)

Publisher and Managing Editor IKRAM SEHGAL talks about the problems facing the banking industry in the light of accountability, re-produced with thanks from THE NATION

Unlike most nations where individuals excel in some discipline or the other, Pakistan has been blessed with professionals of world comparison but we do not seem to recognize this varied excellence. It would be nice from time to time to eulogize our own potential. Which other country can boast pilots and doctors of world compare in such large numbers, or for that matter, bankers? Even in sports, hockey and squash we ruled the world for quite some time, in cricket we have (and have had) the best individual players. Many of today's top airlines in the Middle East and Asean made their beginnings on the strength of PIA's airline management staff, pilots and engineers, two of the largest hotel chains in the world began with PIA's participation. Let us recognise Air Marshal Nur Khan's initiative in most of these fields of excellence.

Agha Hasan Abedi turned Bank of Credit and Commerce International (BCCI) into one of the leading banks of the world. The institution remained very much synonymous with the personality of its maker. The seamy side in the Bank's operations may have suited special clients but without Agha Sahib's constant monitoring the whole system had a tendency to explode in the face of its investors and it did. With bad legal advice and gung-ho activists in collecting 'private deposits', BCCI became vulnerable (So-called Black Network, 30 Jul 91 THE NATION) and thus targeted for extinction. Big money transactions are commonplace in every large international bank (there being a very tenuous fail-safe line with respect to money laundering), BCCI was singled out for punitive action and a dream based on Pakistani professional competence was brought to an end (The Collapse of a Dream 30 Jul 91, THE NATION) with the reputation of Pakistani bankers in shreds, or was it? Pakistani banking professionals continued to excel in other international banks, particularly Citibank (The Banking Professionals, 15 Oct 91 THE NATION). Our present Finance Minister, Mr. Shaukat Aziz, is on leave of absence as Head of 'Private Banking' in Citibank, the largest conglomerate in the world, formed by a merger of Citibank and Travellers Group. Habib Bank's Shaukat Tarin, UBL's Zubyr Soomro (both Citibank) and NBP's Mohammadmian Soomro (Bank of America), all left US$ one million plus (Rs.5 crore plus in today's Pakistani Rupees) salary packages abroad when they were motivated to return to Pakistan in 1997. And this when not counting their bonuses in preferred stocks which ran into millions more! Under very trying political circumstances, all three have been very successful in bringing the nationalised commercial banks (NCBs) back from virtual extinction. In comparison Allied Bank, run by the old crowd, has been a virtual role model for corruption, inefficiency and nepotism of the worst kind. Messrs Tarin, Soomro and Soomro's virtuoso performance was achieved by assembling a bunch of Pakistani professionals in the banking industry from abroad, almost all of whom were persuaded to leave secure jobs at the call of their country. As financial compensation they opted for less than 20% of what they were getting abroad. Worst off was probably Mr Muinuddin Khan, who resigned as Head of Standard Chartered in Hong Kong, to come as Chairman Central Board of Revenue (CBR). Faced with public criticism at his 'high salary' in Pakistan and the foreign exchange crisis post-May 28, 1998 he opted to work without salary, living off his savings. The moment he started to give sleepless nights to the 'fat cats' that were avoiding paying their tax dues, he was packed off.

Why were the NCBs and Development Financial Institutions (DFIs) in trouble in 1997? And why were banking expatriates brought in if they were not in trouble? Most NCBs were close to financial collapse. The cleaning-up of the balance sheets has been a hard grind because senior bankers between 1988-1997 (Banking in Trouble, 18 Jan 1994 THE NATION and Deterioration of Financial Institutions, 1 Feb 1994 THE NATION) had run riot on the strength of their political connections, both for their mentors and to line their own pockets. Those who must be prosecuted should be those who had connived and participated in the looting of the banks till 1997. That is not to say that those who have been involved in any wrongdoing since 1997 should go scot-free. In the light of the banks' performance it stands to reason that black sheep post-1997 must be few and far between. The irony is that if we are to go by rumours emanating from Islamabad, reflected in most major newspapers, almost all the expatriate bankers are on the National Accountability Bureau (NAB) hit list. Almost none of the pre-1997 crowd is. If so, then this country is in for serious financial apocalypse, the likes of which Pakistan has never seen. The loss of confidence due to exit of many executives together may mean a run on a bank. While that is not a pleasant thing for any country, a run of many financial institutions simultaneously would be catastrophic.

Pakistani expatriate bankers who opted to come back post-1997 became role models for excellence not only within the country but for a large number of skilled Pakistanis in various fields abroad, whose talent and expertise the country badly needs and who we must encourage to come back. The freezing of foreign exchange post-May 28, 1998 nuclear explosion destroyed the country's credibility as a safe haven for foreign exchange in the present and the future, perhaps forever. Let us not destroy the country's reputation as a grateful employer of merit. Political governments exist on patronage, the professionalism of these expatriates started to create problems for the ruling elite. When the source of the cheap largesse to which they and their supporters had become used to for the past decade dried up i.e. sanctioning of loans without evaluation of balance sheets, business reputation, expertise, collateral and projected profit, witch-hunting started. A senior banker, Rashid Khan of HBL was forced to resign in 1998 simply because he was doing his job. Shaukat Tarin of HBL and Zubyr Soomro of UBL were also almost sacked later the same year in the sudden change of environment. Muinuddin Khan, Chairman CBR was made 'Officer on Special Duty' and simply faded out, CBR returned to its known modus operandi, all his work undone in a few weeks. An unholy cabal between bankers who were known to be corrupt and those politicians who were denied further access to the 'gravy train' was formed, making life miserable for the professionals, calling into question all their decisions. For the past year, the Presidents HBL, UBL and NBP spent most of their time 'fire fighting' under very extenuating circumstances, shielding the financial institutions from loot by the politicos and their cronies who had belatedly realised the mistake they had made by importing these 'professionals'. Mature heads in the political hierarchy realised that their sacking would not only irretrievably damage Pakistan's financial credibility but would also create a 'brain drain' to go with the 'money drain' (Money Drain, Brain Drain, 01 Aug 98 THE NATION). With the advent of military rule, the lobby has become active again, joined by ambitious individuals within the banking system with school-tie connections who will benefit by the departure of the professionals. Military investigators are usually very good in their own field, it is difficult for them not only to comprehend banking terms and practices but they do not seem to understand that businesses almost without exception thrive on borrowed money, which is what banking is all about. Depositors earn mark-up when the banks give out commensurate loans to others with a premium on the mark-up which includes a commission for the bank. The uniformed agencies cannot be on top of 'white-collar crime,' as acknowledged by Lt Gen Syed Amjad, DG National Accountability Bureau (NAB), only people trained for years in the same field can deliver the goods i.e. retired bankers and chartered accountants having impeccable reputation and expertise in discovering financial fraud. There is also a misconception about 'forensic' chartered accountants that needs to be corrected, all audits are meant to uncover discrepancy, mostly financial. They are no different from other chartered accountants except that some foreign firms specialise in and do not take cases except for criminal investigation. Different chartered accountant teams can easily be put together targeted for complete management audit.

The DG NAB has given a very good example, you cannot take a 100-meter sprinter and make him a marathon man. Uniformed men are generally naive about business terms and when loans run into millions, their antennas start working overtime even though the sanctioned credit may be perfectly legitimate. Going into business a few years after leaving the Army, one remembers being mystified about the term L/C (Letter of Credit). It was only on greater enquiry that the mystery was solved, 'Elsie is not a girl'.