Tag: Bank of Maldives (BML)

Finance Ministry’s MVR 300 million budget-support loan “illegal”

A report by the by the Auditor General has revealed that President Dr Mohamed Waheed’s administration violated finance laws in securing a domestic loan worth MVR300 million (US$ 19.45 million) from the Bank of Maldives (BML) as part of its budget-support program.

The report (dhivehi) – based on the audit published at the Auditor General’s (AG) website last Sunday – claimed then Finance Minister Abdulla Jihad had not obtained the required approval from the president and the parliament.

Jihad has hit back, claiming that the loan was taken to avoid financial disaster. He also suggested that the mandated processes for approving government loans had only been introduced to thwart the MDP government in 2010.

The audit was conducted following a request from the parliament’s Public Finance Committee, after opposition Maldivian Democratic Party (MDP) MP Ahmed Sameer filed the matter at the committee in July 2012.

Section 5 of the Public Finance Act 2006 (as amended in 2010) states that any loan or credit facility which either the government or a government-owned corporation wishes to obtain, can be taken only after presidential and parliamentary approval.

The audit report stated that despite the legal requirement, Jihad – recently reappointed to the same position by the recently elected President Abdulla Yameen – had signed the letter of sanction on May 28, 2012, one day before the request for approval of the loan was sent to President Waheed.

According to the report, Jihad signed the final loan agreement with BML a day later on May 29, 2012.

A measure taken to prevent a financial disaster

In his defense, the Finance Minister has told local media that the loan was taken out of necessity, to prevent the state from financial disaster.

Jihad claimed that during May 2012, the government faced enormous difficulties following a decline in cash flow. By the end of the month in question, the government had almost exhausted its finances, said Jihad.

Furthermore, the minister claimed that he had consulted with President Waheed and decided to take the loan, but that the parliament had gone to recess.

“At that critical time, we had no other option. That was a measure that had to be taken in order to keep the state running. Hadn’t we done that, the state employees would not have been paid the month’s wages. We ought to consider the situation at the time. At that time we weren’t even able to obtain a loan from the Maldives Monetary Authority (MMA),” Jihad told Haveeru.

Blasting the current requirement of parliamentary approval before taking loans, Jihad claimed that no other modern democratic states followed such a practice. Because of the requirement, the government had lost several loans and had become a disgrace in front of most of the international financial organisations, Jihad added.

He also admitted that the amendment brought to the Public Finance Act in 2010 during the administration of former President Mohamed Nasheed was intended to disrupt the government’s functioning.

President Nasheed at the time had no choice but to ratify the amendment as his party was outnumbered when the vote was taken in parliament. The then-opposition now comprises most of the current governing coalition.

Jihad also criticized the AG’s report itself: “I am the Minister. But when the report was compiled, [Auditor General] had asked nothing from me. Of what had happened? So how can this report be accurate?”

Shortcomings

The report also revealed that although the government had formally sought parliamentary approval of the loan on June 13, 2012, by this date the Finance Ministry had already withdrawn the first tranche – MVR200 million (US$ 12.97 million) out of the MVR300 million.

The government withdrew the remainder on June 20, 2012, the report stated.

Furthermore, the report claimed that in the letter sent to the president by Jihad, approval was sought for the loan with a request that it be made part of the US$65 million (MVR 1 billion) overseas loan that gained parliamentary approval as part of the 2012 national budget.

The report claimed that the conditions for the domestic loan from BML, and that of the proposed US$65 million overseas loan differed significantly.

Among the significant differences highlighted in the report, parliament had approved the US$65 million overseas loan with an interest rate of 2 percent while the BML loan had an interest rate of 9 percent subject to annual reviews.

Furthermore, repayment of the US$65 million loan was to commence within 10 years, while the BML loan required the repayment within just two years.

“Therefore, the loan of MVR300 million taken from the Bank of Maldives in the year 2012 had been taken without the approval of the parliament and the president, disregarding the decisions made by the legislature and the Public Finance Act,” concluded the report.

The Auditor General furthermore requested the authorities to take action against those found responsible for the misconduct.

The current government meanwhile has sought for the approval of a US$29 million (MVR 447 million) budget-support loan that is to be taken from the Bank of Ceylon, for the 2014 state budget.

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Leaked Grant Thorton report reveals beneficiaries of BML’s risky pre-2008 lending

Additional reporting by JJ Robinson

A leaked draft of a report into the Bank of Maldives’ (BML) lending practices prior to 2008 has identified those behind potentially destabilising breaches of both BML and Maldives Monetary Authority (MMA) guidelines.

The asset recovery investigation by forensic accounting company Grant Thornton, drawing on the 2008 Attorney General’s report on BML, concludes that it would have been “impossible for the [BML] board to not have been influenced” in the granting of significant exposures in the form of credit to a select coterie of Gayoom-era affiliates.

The document reveals well-connected individuals bypassing BML rules regarding the handling of non-performing assets, with a number of large companies belonging to politically-active businessmen continuing to receive credit despite failing to satisfactorily meet previous repayment obligations.

“The large exposures that BML held, were in the main, due to members of the board or their relatives,” the report found.

“Due to the fact that the largest exposures of the bank were from Board members and/or their families, it would be unrealistic for the Board to provide any clear independent review of the banking facilities provided, and would in [our] view form conflict of interest issues for those Board Members involved,” it added.

The report names a number of individuals and business groups who benefitted from the state bank’s loan and overdraft facilities towards the end of Maumoon Abdul Gayoom’s 30 year tenure as head of state.

The government was handed a US$10million (MVR 154.2 million) invoice from Grant Thornton last year in what former Foreign Minister Dr Ahmed Shaheed told Minivan News was a penalty fee for stopping the investigation initiated under Gayoom’s successor Mohamed Nasheed.

Prior to the alleged request from the current government to halt the investigation, Grant Thornton had uncovered evidence of an alleged US$800 million oil trade involving former head of the State Trading Organisation (STO) and current presidential hopeful Abdulla Yameen. Shaheed alleged that the accounting firm was contracted to receive a percentage of any assets recovered as a result of its work.

The private parties named in Grant Thorton’s BML assessment include the Sun Group, Lily Group, Sultans of the Seas, VA Group, Afeef Group, Villa Group, Thasmeen Ali, VB Group, and Rainbow.

“Many of the above parties benefited from loans that were used to assist in purchasing leases for resorts, related tourism businesses etc, of which would not have been achieved without the connections held by certain individuals,” the report said.

The report also makes particular mention of the role of Ibrahim Gasim, both Finance Minister and non-executive BML board member at the time of the majority of cases documented within the Grant Thornton report.

Gasim, who is also standing as the Jumhoree Party (JP) presidential candidate in next month’s election, would have been responsible for the appointment of the majority of the BML board at this time.

Grant Thornton’s report revealed that Gasim’s Villa Group had been loaned MVR481,299,571 (US$37,601,520) as of October 31st 2008, representing 32.4 percent of the bank’s entire capital.

This represents one of a number of examples of such exposure featured in the report, despite the Bank’s acquiescence in 2006 to an MMA request to reduce any credit guaranteed to individual or related group borrowers to 30 percent of overall capital.

After repeated lobbying, the MMA increased this amount to 40 percent. Grant Thornton suggested that this extension request was due to the fact that a number of the groups mentioned in its report were already exceeding the original lower limit.

In rejecting one of BML’s requests for an increased credit exposure limit, the MMA wrote that “such concentration of credit is far in excess of the legal lending limits of the bank and it could seriously threaten the bank’s position, and the stability of the whole financial sector,” the leaked document stated.

Even with this increase, Sun Group is reported to have exceeded this limit after January 2008, with loans and overdraft facilities reaching  MVR 607,345,442 (US$46,879,400) as of 31 October 2008.

“This amounted to 40.8 percent of the Bank’s capital as at 31 October 2008,” the report observed.

Loans and overdraft facilities provided to Afeef Group totalled MVR 245,123,414 (US$19,150,266) as of October 31, 2008 – approximately 16.5 percent of BML’s total capital at the time.

Sun Group Chairman and majority shareholder Ahmed Shiyam’s Maldivian Development Alliance (MDA) meanwhile this week announced its decision to form a coalition the Progressive Party of Maldives (PPM), headed by former President Gayoom.

Alterations to BML’s internal loan approval mechanisms for board members in May 2007 resulted in the bypassing of the bank’s Credit Committee.

“This effectively meant that those Board Members that had applied for credit facilities were approving their own loans,” stated the draft report.

BML board members complicit in self-approving their own credit lines include Mohamed Ahmed Didi (Sultans Group shareholder), Ahmed Hamza (Director of the VA Group), and Gasim (Chairman of the Villa Group).

Director Mohamed Adil also features prominently, being cited in one particular example of a board meeting in which he approved the re-financing of the Sultan Group’s debt at the same time as being the group’s major director/shareholder.

BML’s recovery

In the intervening years, BML wrote off multiple toxic non-performing assets and returned to profitability, largely by outright ceasing to pay dividends to shareholders for almost five years.

The Bank’s board approved a MVR 50 million (US$3.23 million) interim dividend to shareholders in July 2013, the first since 2008.

“This marks the end of a painful and challenging journey that began in 2009 when the bank reported record level non-performing loans. However, in recent years Bank of Maldives has reported record level earnings and operating profit and the company returned to profit in 2012,” read a statement from BML.

BML’s former CEO Peter Horton, a UK banker appointed in February 2011 with extensive experience tackling distressed portfolios and problem lending across Africa as part of Barclay’s corporate turnaround team, resigned in August 2013 to head up Bermuda Commercial Bank.

“The profitability and dividend payment will be sustainable going forward,” said Horton in the bank’s July statement. “This is an interim dividend and at MVR 9.29 [a share] for the half year places us in a strong position to pay the highest full year dividend in the Bank’s recent history at year end”.

Download the leaked GT report

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New soft loan scheme to be launched by BML

A new loan scheme is to be introduced by the Bank of Maldives (BML) following its previous soft loan plan, the bank has announced.

BML has previously issued MVR 15,000 (US$970) loans without a mortgage as part of their soft loan scheme, which the bank claimed had proven popular with the public.

The new scheme will be an extension of the existing plan, however BML has not stated its ceiling value or interest rates.

Only BML customers who have had their salaries deposited into their respective accounts continuously for one year will be eligible for the new soft loan scheme.

BML have stated that the new product will not require customers to submit quotations, and that the service is expected to commence soon.

The previous MVR 15,000 small loan scheme will not be ceased with the introduction of the new plan, the bank said.

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Bank of Maldives to add 19 new ATMs

The Bank of Maldives Plc Ltd (BML) has announced plans to install 19 new ATMs across the country during the next few months.

In a press release on Thursday, BML said the ATMs were supplied by Diebold, a leading manufacturer, and were due to arrive this month.

“These state of the art machines come with world class security features and have the capability to launch new services to offer a superior customer experience,” reads the press release.

It added that the bank sought customer feedback for the project and has decided to install the new machines in existing ATM locations.

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