RUSIRIPALA WRITES TO NEW CHAIRMAN OF PEOPLE’S BANK

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RUSIRIPALA WRITES TO

NEW CHAIRMAN OF PEOPLE’S BANK

Thursday, January 16, 2020

Mr. Sujeewa Rajapakse

Chairman

Peoples’ Bank

Dear Sir,

I am delighted to congratulate you on your placement as the Chairman of the Peoples’ Bank and wish you the best of luck in your new position.

I take this opportunity to offer you some information about the current affairs of the Peoples’ Bank and to share with you an account of experiences acquired over a period of time during and after my long service in the bank. These matters have been diligently pondered over by me in the contemporary situations as an employee, aleader of the Bank Employees’ Trade Union and a Public Interest Activist. I trust you will pay due attention to these presents, presuming the usefulness of these to a professionally qualified person like you in fulfilling the mission bestowed on you as the head of an important Public Institution.

Peoples’ Bank has been entrusted with the mandatory role of supporting the acroeconomic development of the country. Today it stands grown to an enviable status in the banking industry. Many of your predecessors including the legendary first Chairman, the renowned cooperator, Late Mr. Vincent Subasinghe, have played their role to advance the progress of the bank from its humble beginnings and it is your responsibility now to carry that good work forward.

The passage of history associated with the Bank’s progress was not with out turbulences. It is common knowledge that the Governments of the day have had to support its survival on several occasions under compelling circumstances associated with and directly related to its’ poor performance standard sand unsatisfactory business operations. Some of the previous political appointments too have, unfortunately contributed to this state of affairs.

The current scenario is also marred by similar evidences of the old anomalous affairs still remaining. Those need to be addressed urgently in the context of the declared policy framework involving reforms, of the new Government, under His Excellency The President Gotabhaya Rajapakse. Hence it is opined that I should highlight some of those for your attention. It is a long list but as a Senior Accountant you

will no doubt consider them in the appropriate manner to deal with accordingly.

Available information show that most of these have reportedly been referred to in the CBSL statutory Audit reports making my task easier in convincing you about the authenticity of the shortco mings highlighted here in. Hence the CBSL audit reports of 2017, 2018 and the most recent 2019, are referred to as relevant material for your perusal.

Following summary of the randomly selected issues will confirm this position;

The interim report of the Presidential Commission {appointed by the last President} to inquire into the misdeeds of the SOEs has been submitted to the Presidents’ Office. Reportedly the Commission has examined many instances of serious irregularities in the Peoples’ Bank in several areas such as procurements, human resources, lending operations and other questionable transactions and recommended action to be taken;

You are aware of the public turmoil created following the Parliament COPE inquiry about the Peoples Bank. Certain corrective steps were proposed to the bank by the COPE and the officials who attended the inquiry agreed to give effect to those. An examination of the COPE report (now available to the public) will show the nature of the allegations made and whether the undertakings given have been fulfilled as expected;

Among the irregularities pointed out by the COPE, there was a serious focus on the action taken by the former Chairman Hemasiri Frnando and certain named executives with regard to the Bank’s digitalization project. Some time back long before the COPE review, this became a hot topic in the Public Media, both Print and Electronic. So much so the Peoples Bank in an unprecedented manner had to clarify the bank’s position through a campaign of paid advertisements incurring a heavy expenditure;

The Trade Unions of the Bank, generally accepted as the watch dogs of the institution, were taken to courts on alleged defamation charges levelled against the Union leaders for criticizing the bank’s irregularities. Such court procedures including several other actions instituted by the Bank against individuals, media stations etc. retaining highest paid outside lawyers continue to cost a colossal sum to the bank. The management ostensibly resorted to these acts of intimidation as a threat to silence legitimate public opinions against the wrong doings of the Bank. An examination of the expenditure incurred as legal fees on account of these cases will clarify the position;

It has been alleged that the Bank initiated a project to set up a Railway Museum costing approximately Rs. 300 million. A current account opened with the funds allocated, is operated under the signatures of the Former Chairman Hemasiri Fernando and the current CEO, Gunewardhane. Among the suspicions cast on the matter, conjectures expressed by whistle blowers indicate that the purpose of the project was tainted with other questionable considerations.

There have been serious lapses in the lending operations of the Bank during the last four and half years,

evidenced as follows;

Facilities granted to a Company connected to a Director of the Bank, Jehan Amaratunga came under heavy criticism. This matter was raised at the Parliament COPE Inquiry. Bank officials who attended it gaveextremely untenable explanations which in the course of time have proven to be fallacious AND misleading.

Several senior officials of the Bank’s credit line have played highly apprehensive roles in granting these facilities either in connivance or acting under the infiuence of misused authority. They have been rewarded with undue promotions and several facilitations as pay offs, which if reviewed will confirm, are far from any reasonable standards suited for a public institution.

Several questionable credit decisions have been taken by the Credit Line officials in granting facilities involving huge amounts which have been subsequently transferred to the NPL category. Given below are few specific instances publicly revealed by whistle blowers from time to time;

A loan of Rs. 1,677,510,000/= granted to a Maldivine based Company in March 2018 has been transferred to NPL in March 2019 without any repayments. It is also reported that the bank had to delay legal action due to the inability to trace the borrowers. This loan has been released in foreign exchange from the FCBU of the Bank.

Out of a total sum of approximately Rs.11,815,045,010.41 granted to MTD Walkers Ltd., a Company controlled by Jehan Amaratunga while serving as a director of the PB( as internally reported on 31^st march 2019) Rs. 10, 254,971,338,07 has been transferred to NPL from time to time and remains there.

A further sum o f R s . 2,739,077,040.83 granted to CML MTD construction Ltd., (another company where former bank Director Jehan Amaratunga was serving as an Executive vice chairman), has been transferred to NPL due to nonpayment. The balance as at 31st March 2019 in the NPL account was Rs.2,676,384,309.23.

The full amount of Rs. 212,177,247.28 granted as a loan to a Company called Adam Carbons Pvt. Ltd. has been transferred shortly after (without any repayments) to the NPL. This company is owned by a former Director of the Peoples Leasing Company. The facility has been granted while the Director was serving as a director at the PLC.

More recently a sum of US $ 15 million has been granted to a Sri Lankan Company to finance a sugar cultivation project in Sierra Leonne. According to the whistle blowers’ information published in the media some officials in the credit line have refused to recommend this facility and despite their adverse comments and negative observations the facility has been released in a hurry by the top officials.

A temporary overdraft facility granted by Sabry Ibrahim, SDGM, a contract employee, who has since left the Bank, amounting to Rs 10 million through an account opened by D.P. Jayasinghe & Co without any security remains transferred to the NPL. Reportedly this facility was approved by the SDGM one day before his scheduled departure from the Banks service. Immediately after he left the PB he was appointed as the CEO of Peoples Leasing company where he is serving to date.

Facilities granted to Mendis & Co, a highly controversial business concern connected to the Central Bank Bond Scam, amounting to about 2 Billion have been transferred to NPL. The amount granted, securities obtained indicate mala- fides as well as the callous disregard to the Risk Control regulations. It is note worthy, that the Peoples Bank has granted this facility after revelation of the Bond Scam.

An examination of facilities (Loans and overdrafts) exceeding Rs. 10 Mn lying in the NPL category will refiect the standard of the lending operations of the bank and the competence of officials in the Credit Line. Strangely the entire operation connected to the approval and granting of large loans and facilities were structured allocated among the Contract employees selectively placed in highly sensitive positions.

A careful tracking of the placements and promotions given to these selected contract employees will establish that the treatments given are highly unusual. They were granted remuneration packages undisclosed by the Bank even under the Right to Information Act. These special emoluments included official vehicles, vehicles for personal use, drivers’ allowances, self- driving allowances, entertainment allowances etc. which had no parallel in State institutions showing that they were groomed and positioned to serve a special purpose beyond the normal banking functions.

Their performance however has not helped the Bank to streamline the procedures as expected. The identified ailments related to capital requirements continued as a result of which government intervention had to be sought from time to time to obtain funds to maintain the CAR requirements.

The level and standard of their performance is refiected in many instances of adverse outcomes the bank had to experience such as the shortcomings observed in the IT system sintroduced w i t h t h e

recommendations of specialists recruited on contract basis; ]

The system failing to fulfill the requirements stipulated in the Banking Act No.3 of 2008, with regard to the automation of the calculation of impairment, loan loss provisioning, interest recognition, classification of NPL according to CBSL guide lines, loan re-structuring procedures and loan rescheduling.
Inability to monitor and keep track of the compliance of procedures in terms of the Strategic plan, which was formulated with a huge cost running into several hundreds of millions.

The frequent failures observed in the operations and customer services provided through the IT. The recent circular issued stopping cash withdrawals from ATMs is a good example.

The failure to recognize and forecast future expenditure to be incurred on account of frequent supplementary additions required to the system. This is being done currently at a huge cost in an unexpected manner beyond any control by the Bank. It is a refiection of the total failure of officials entrusted with the task of finally accepting the commissioning of the systems followed by USER ACCEPTANCE TESTING (UTA) before making the final payments. There is ample proof to conclude that there has been definite connivance with the suppliers established according to the following

The Head of IT then responsible for the system recommendations now being employed, soon after his discontinuation from the PB at the Company which supplied the system.
The several payments that the Bank had to make and continue to pay subsequently on account of changes to the system.

An examination of the investment portfolio functioning under the Treasury department indicates the quality of incompetent and puerile judgments and applications on the part of decision makers entrusted with the task causing heavy losses while missing opportunities. Some of these transactions appear to be tainted with corruption. Investing in the debenture issue of a Company which is heavily indebted to the bank can be cited as an example. Bank has invested Rs.500 Mn. In debentures issued by MTD Walkers, (where Jehan Amaratunga was an Executive Vice Chairman). This Company has failed to honour the liability due on these debentures;

Bank has started a new practice of out sourcing the preparation of salaries of senior Executives urportedly to maintain secrecy. This function was performed by the salaries department of the bank for several decades and the ostensible reasoning appears to be a ruse to hide possible unscrupulous manifestations at the top for personal gains. Whether such a system is suited to a public institution is a question in addition to the extra financial cost to the bank to operate such a system;

The Advertisement budget of the PB has to be examined as the bank spends a very large sum continuously under this program. There are allegations about intermediaries involved in shady operations adding on to the costs of the Bank;

The functions and operations of the LEGAL department of the bank has to be closely monitored. Bank is obtaining the services of highly paid outside Lawyers even for representing the Bank at a RTI inquiry. It is reported that cases are filed even after opinions are expressed about the difficulties in obtaining a favorable judgment. This is done to avoid the responsibility falling on approving authorities for their faulty decisions. An examination of the Legal costs and the exorbitant amounts paid in certain instances will establish the veracity of this allegation;

These references will explain the situation now prevailing in the Peoples’ Bank. I presume you have already looked into the important Statistics since it is your specialty. Nevertheless, I wish to highlight some notable features which may give an indication to you about the Public concerns surrounding the issues.

Profits have come down to RS 13.0 Bn from the 2018 position.·
The position (industry placement) on profitability has come down to 4^th Place from a previous prestigious 2^nd Place·
The NPL balance has increased from Rs. 31 Bn to 44.0 Bn as at end of Dec 2019.

All these statistical data refiect a downward trend and a decline in the progress of the bank. The results that appear today are the consequences of the poor performance during the last few years. It is possible that the situation will decline further with more facilities being transferred to NPL in time to come. It is alleged that what is publicized is not the actual NPL position. Several advances which lie virtually dormant without any repayments are kept in the current section. The CBSL too has commented on this faulty accounting system Stating that there is a Significant deterioration in asset quality in 2018. Therefore, it will be a prudent step to examine who is responsible for these bad lending practices and whether there has been any corrupt activity involved. Specially the officials who approve large facilities should bear the responsibility for the adverse outcome of their credit decisions. Bank is reportedly following strict punitive action in the case of officials who approve defaulting facilities at the Branch level including the suspension of pension payment, while the Seniors approving large loans which account for more than 60% of the total defaults are going scot free without any accountability. Almost all large loans that figure in NPL have been granted through the FCBU or CBD which come under the Corporate Banking Division. Hence a closer scrutiny of the affairs at the Corporate Banking Division is a must.

The operations of the Peoples Leasing Company which is the largest subsidiary of the PB has to be examined because of several alleged irregularities there. PLC in turn has established some subsidiaries of its own which undertake contracts from the PB directly by passing the Procurement and

Tender Procedures. This operation is viewed as a maneuver designed to circumvent procedures and regulatory controls.

PB was the only state bank that got involved in the infamous OIL HEDGING FIASCO. Bank has already written off approximately Rs.5 Bn. as losses incurred in this transaction. The continuing litigations to avoid further losses on account of pending claims is costing the bank in millions. To date no one has been held responsible for this. The limitations you will face in trying to take any action in this regard is understandable. Nevertheless, the lesson that has to be learnt in this debacle is the caution one need to exercise in entrusting Financial responsibilities to contract employees. Because the two senior officers identified with involvements in the Hedging issue were both contract recruits. This serves to prove that there is a difference in the approaches between acontract employee and a career banker when it comes to decision making on behalf of the Bank. Lastly I wish to point out certain areas you will understand better falling with in the accounting parameters. The accounting portfolio has to be closely scrutinized as there have been certain deliberate concealments in the provisioning for loan loss and staff retirement benefit schemes.

In 1990s an International Audit revealed a huge deficit in the capital due to similar reasons which were rectified under a recapitalizing program by providing Treasury Bonds to the tune of Rs.10 Bn. to augment the capital. According to available in formation, acloser examination will disclose a worse scenario now. Accumulated shortfall in the provisioning towards the Staff pension fund alone reportedly exceed Rs.17.3 Billion. This is the actual value of the provisions, provided correct assumption sareusedin the computation. Bank is manipulating this using unacceptable and outdated assumption parameters in the actuarial evaluation to avoid a huge provision requirement and to show infiated profits.

The loans that need to be transferred to NPL are continued in the current sections of the books of the bank showing a false asset value. This is a high risk stance to be permitted at any cost which will lead to

serious future consequences. I trust you will consider these in Public Interest and address them to safeguard the future of this important National Institute.

Wishing you all the best once again let me conclude this letter by assuring you my availability for any clarifications on the matters highlighted herein.

Thank you,

Yours Sincerely,