The Small and Medium Enterprises (SME) Bank has not only sustained a huge loss of around Rs1.5 billion as it failed to recover loans in 2009 but has also lost the opportunity to recover such loans as its recovery department has ceased to function since December 2009 and officials responsible for granting loans on fake documents have also left the bank’s service under VSS-2009.
An audit report on the accounts of SME Bank for 2009, a copy of which was made exclusively available with Pakistan Today, reveals massive irregularities in bank’s lending mechanism, which resulted in the loss of Rs1.5 billion. In the first case, the SME Bank sustained a loss of Rs1.251 billion as its recovery department shut down with effect from December 31, 2009.
The federal audit authorities have revealed that the management of SME-Bank ceased the functions of the department and its staff was placed in surplus pool. “In 3,647 loan cases, an amount of Rs1,251.92 million was recoverable, against which the recovery was nil as on December 31, 2009. The nil recovery showed that either borrowers or the guarantors were not traceable as loans were granted on the basis of fake documentation. The management of SME Bank had not initiated legal action against these defaulters. Most of the officials, responsible for the grant of these loans had left the bank service under VSS-2003 and 2009,” says the report.
In anther case, the audit report reveals that SME Bank in Bahawalpur in 1995 made bogus loans in eight cases inflicting a loss of around Rs4 million on the bank. “The six loan cases were sanctioned in a single sequence on October 11, 1995 and the record showed that borrowers and guarantors were not available at recorded addresses mentioned in loan documents. Service certificates provided by the guarantors in the respective cases were fake ones as were the National ID Cards of the borrowers were fake as per report of NADRA,” says the report. It adds: “Similarly, the Recovery Office, Peshawar reported five cases in which the borrowers were not traceable and an amount of Rs2.657 million was outstanding in these loan cases.”
The report additionally reveals a loss amounting to Rs91.692 million to the bank due to non-deduction of income tax from those who opted for VSS-2009. “As per VSS-2009, total 129 options were received and accordingly employees were laid off from the strength of the bank in December 2009. The payment of tax was the responsibility of the employees concerned but the scrutiny of relevant record revealed that against a total required tax deduction of Rs 102.150 million, the management could deduct an amount of Rs 10.459 million from those who accepted VSS. This resulted in loss of Rs91.692 million to the bank due to non-deduction of income tax from those who opted for VSS-2009,” the audit authorities have revealed.
The loss of Rs73.440 million was also recorded due to non-recovery of loan amount in multiple lending cases. “In SME Bank, Islamabad in 195 cases of multiple lending an amount of Rs73.440 million was recoverable. Multiple cases of lending were not allowed under the rules till the clearance of first loan. The lending and default in these cases showed that the cases were sanctioned, in connivance with the concerned branch management without assessing the status of previous loans. Most of the officials, responsible availed the VSS and are no more in bank service. The chances of recovery of these loans were remote and the bank is likely to sustain a loss of Rs73.440 million on this account,” the report points out.
Pointing out another loss of Rs22.789 million, the audit report says the 138 loan case files were missing at certain recovery branch offices as on December 31, 2009. “An amount of Rs22.789 million was recoverable against these loan cases. The files were misplaced due to negligence on the part of concerned bank management. Most of the officials responsible for said missing loan files had left the bank service under VSS 2003 and 2009,” the report mentioned.
Audit finds massive irregularities at SME Bank
