Use ICAB to verify borrowers’ info, regulator asks banks

The Bangladesh Bank issued a circular on Tuesday directing scheduled banks to utilise the Institute of Chartered Accountants of Bangladesh's (ICAB) Documents Verification System for online verification of institutional borrowers' financial information.

The circular further states that a proper utilisation of this system will boost credit discipline and cut down defaulted loans in the country's banking sector.

At least 2 lakh companies are registered in Bangladesh, and among them, around 1.55 lakh are currently in businesses here. ICAB members conduct audits on about 16,000 of these companies, and the banks can verify their information using the institute's Documents Verification System.

"The rest are not audited by ICAB members, and in many cases, these companies are confusing the National Board of Revenue (NBR) and the Bangladesh Bank by using fraudulent documents," ICAB Council Member Md Forkan Uddin FCA told The Business Standard.

Such malpractice allows these companies to present a lower amount of payable taxes to the NBR, but a comparatively higher tax amount to the central bank – which helps them secure large amounts of loan, he added.

The ICAB states that a scheduled bank – utilising the Documents Verification System developed jointly by the institute and NBR – will be able to verify all necessary information about any audited institutional borrower.

When properly utilised, this verification system will allow the NBR to identify companies that are evading taxes by submitting fraudulent documents, which in turn will positively impact Bangladesh's revenue earnings.

Moreover, the Bangladesh bank will be able to verify information about companies seeking loans to help cut down the number of defaulters and defaulted loans. Aside from the central bank and the NBR, the Bangladesh Securities and Exchange Commission, and the Financial Reporting Council also have access to the Documents Verification System.

Providing more details, ICAB Council Member Md Forkan Uddin FCA said, "As of now, four agencies will be able to use our system free of charge. Scheduled banks operating under the Bangladesh Bank will also get this facility.

"There are however legal hurdles against allowing any other private organisations or individuals to access the Documents Verification System. We are currently working on the issue. But we are certain that the Bangladesh Bank and the NBR's effective use of this system will ensure more transparency in the country's financial sector."

He further said, "We began working jointly with the NBR on this system in 2020. With the board's initiative, the system became operational on December 1. Along with the necessary information about audited companies, the system database will have five key figures."

Lauding the move, ICAB President Mahmudul Hasan Khusru FCA said, "The Bangladesh Bank has taken a very right decision. From now on, banks will have to verify the information in audited financial statements that are filed for taking out loans.

"This will help improve good governance and bring significant improvement in the financial eco-structure of Bangladesh. We are delighted, and we express our heartiest gratitude to the government for allowing us to be a part of the country's economic development to a greater extent by utilising this IT technology. We are ready to provide more support in this regard."

The Bangladesh Bank's circular said during the verification process, a scheduled bank must crosscheck the financial statement submitted by a company seeking loans using the ICAB's Documents Verification System.

Under the existing rules, banks check whether a borrower's financial statement is audited and signed by an approved firm. But now, they will be able to complete this process online through the ICAB's system.

The regulator – under the Bank Company Act, 1991 – has directed the scheduled banks to contact ICAB under their own initiative to get access to this database.

On 4 January this year, the Bangladesh Bank made it mandatory for banks to collect and preserve updated Statutory Audit Report, audited by chartered accountants, in file before approving and renewing a loan to a company.