70pc banks don’t have budget for compliance units

FT ONLINE

Around 70 per cent of the surveyed banks don't have separate budget for their compliance units that deal with both internal and external issues.

But 91 per cent believe compliance costs help to reduce banking business risks.

Besides, private and public commercial banks have to submit a total of 263 reports annually to the central bank to comply with various issues.

The findings were revealed at a roundtable discussion on 'Costs for Compliance with Regulations in Banks' organised by Bangladesh Institute of Bank Management (BIBM) held in the city.

BIBM director general Toufic Ahmad Choudhury presided over the roundtable. BIBM chair and former Dhaka University Economics professor Barkat-e-Khuda, BIBM supernumerary professors Helal Ahmed Chowdhury and Yasin Ali, among others, spoke at the discussion.

The research findings also revealed the central bank faced a number of challenges in ensuring regulatory compliance as authenticity or reliability of the reported data can't be ensured while wrong data have been reported and those are hard to cross check.

Other challenges included the lack of specialised manpower, technical skill and the absence of updated data collection system, processing, migration, extraction, analysis and managing compliance cost effectively.

As Bangladesh Bank (BB) is the main regulatory authority of the banking sector, it has 15 acts/laws, 46 guidelines, 10 regulations and 478 circular/circular letters as regulatory requirements, said Mohammad Tazul Islam, associate professor at BIBM.

"But these regulations also incur a cost on banks," he said while presenting the survey findings.

With the increasing regulatory compliance requirements for banks over the years in the country, costs of complying with the requirements are also increasing, he said.

About 78 per cent of the respondents said compliance cost is also increasing over the years.

Some 96 per cent of them argued that compliance cost does not adversely affect their business or profit significantly, he added.

A large bank has invested an amount of Tk 50 million in the compliance unit, the research paper showed.

The average fixed cost of the compliance unit has increased to Tk 6.55 million in 2017 from Tk 6.41 million in 2016, the paper noted, explaining this might be partly because of the renovation or enhancement of capacity of the compliance unit.

The cost of compliance with regulations related to the prevention of money laundering and terrorist financing increased almost four times to Tk 10.34 million in 2016 from Tk 2.74 million in 2016, it revealed.

The cost, however, surprisingly decreased in 2017, it added.

Mr Islam recommended stopping false reporting to the the central bank and reducing the number of reports submission.

Disagreeing with the banks' allegation that complying with the related issues has become difficult due to reduction in the bank interest rate, Yasin Ali said the allegation is not right.

Bank owners are business people, he said, adding loans are disbursed at lower interest rate to the people involved with the executive committees of banks.

The central bank interferes in protecting the interests of the depositors and its guidelines have to be implemented, he added.

Director general at BIBM said banks are doing business complying with all the regulations, though they were not named in the terms of compliance.

Barkat-e-Khuda favoured making the compliance cost rational instead of bringing it down.

Helal Ahmed Chowdhury recommended coordination among different departments of the central bank, saying seven to eight departments seek similar information.