Fraudulent acts in a couple of Nations Trust Bank PLC (NTB) branches have cost the bank as much as Rs.365 million during its first quarter of operations ended in March 31, 2015 (1Q15), the interim financials released to the Colombo Stock Exchange (CSE) showed.  

As a result, the bank’s return on equity (RoE) has dented significantly to 14.11 percent from 20.18 percent recorded just three months ago.

This is due to the individual impairments or the provisions for possible loans and other losses increasing by as much as 480 percent year-on-year (yoy) to Rs.395.4 million.

“A one-off impairment of Rs.365 million has been provided against lending to some customers at two of our branches which has been made against security that has been fraudulently provided,” the notes to the financial statements said.

Soon after the fraud came into light, concerned over the events unfolding in the banking industry, the Central Bank’s Bank Supervision Department too has asked all banks to step up their internal controls to avoid similar situations as such things could damage public confidence on the banking system.    
According to sources, a branch manager who is implicated in the fraudulent activity has fled the country and is on the run as the International Criminal Police Organization (INTERPOL) is now behind him.

Back in 2009, NTB suffered a massive foreign exchange loss of Rs.800 million due to breach of procedures in its dealing room (treasury), which resulted in two senior officials leaving the bank.

NTB however said they were taking all steps to recover these sums.

“Things such as this are not exceptional in the banking sector, but only a very few come into light. But we are taking all possible measures to strengthening our internal controls,” a top NTB official told Mirror Business on the condition of anonymity.

Job rotation policy is one such risk mitigation method where an employee is rotated into different areas/units of the bank so that the employee has limited scope to commit a fraud individually or through collusion.  

In a recent report compiled jointly by PricewaterhouseCoopers and the London Business School found that bankers are more likely to behave unethically when under pressure to reach tough performance targets.  The survey conducted based on 2,431 financial services company managers during November and December 2014 has found that managers in banking, insurance and wealth management were more anxious and inclined to misbehave when negative consequences or punishment for poor performance were highlighted.

“When it made them feel anxious, they tended to say money was one of their key motivators. They also tended to take more risks and make unethical choices,” Duncan Wardley, a behavioural science specialist at PwC was quoted as saying to Bloomberg.