Fraud cases in banking sector on the rise

[LRE]

RIZWAN BHATTI

KARACHI (June 04 2009): The number of fraud and forgery cases in the banking industry are on the rise for last one year due to weakened operational risk management. Industry sources said the State Bank of Pakistan recently initiated some new steps for the proper monitoring of operational risk management and as part of this move for the first time it started collecting details of fraud and forgery cases being detected in the banks.

It registered an increase of some 39 percent in such cases in the quarter ended December 2008. "Apart from ensuring the sound system and practice in the management of operational risk, the SBP monitors the magnitude and trends of the risk emanating from the failures in control environment and system of banks," they added.

The data compiled by the SBP revealed that fraud and forgery cases in the banking industry are gradually rising due to the weakened operational risk management. As per SBP statistics, there has been 38.7 percent increase in fraud and forgery cases during the quarter ended December 2008 as compared to the cases detected during September-2008 quarter.

Total outstanding cases of fraud and forgery have climbed to 6,338 during the September-December 2008 as compared to 6,288 cases in September-2008. Outstanding amount against these cases has also increased by 7.2 percent to Rs 6.5 billion in December 2008.

The detailed study revealed that number of cases for serious fraud has increased by 1.1 percent to 186 cases with an amount of Rs 4.017 billion. Medium-severity cases reached 399 with an amount of Rs 1.112 billion after a decline of 2.9 percent in December 08.

Whereas, low-severity category fraud and forgery cases have increased by 1.1 percent to 5,753 with an amount of Rs 1.426 billion. Serious fraud cases represented 1.6 percent of the total incidents reported with outstanding amount representing around 77 percent of the total outstanding amount.

Medium severity cases contributed some 4.2 percent share in total cases and about 15 percent in terms of total outstanding amount of the fraud and forgery cases. In addition, the number of low severity cases contributed around 94.2 percent of the total cases and 8 percent in terms of total amount involved.

Although the amount involved in fraud and forgery cases hovers around Rs 6.5 billion, the number of fraud/forgery cases is on the rise for last one year or so, SBP said. Under serious fraud category, 13 cases of Rs 687 million were reported during December-2008 quarter.

While 33 cases of Rs 126 million were reported under medium severity category and some 743 cases of Rs 75 million were detected under low severity fraud cases. The SBP has asked banks to be more proactive in their approach to reduce the number of such cases.

Recently, the SBP also asked banks that keeping in view the current global financial turbulence, increased volatility and the increased frequency of unforeseen incidents, the importance of operational risk framework has increased manifold. As per SBP standard, over Rs 10 million worth frauds are considered serious frauds, while cases Rs 1-10 million are medium severity frauds and less than Rs one million are the low severity cases.

Copyright Business Recorder, 2009