ISLAMABAD, Feb 5 A fraud amounting to hundreds of millions of rupees in fake loans has been detected in the Gilgit branch of the National Bank of Pakistan, causing a setback to NBP's efforts to extend its presence in Northern Areas and promote business activities in the remote and backward region.

Well-placed sources told Dawn that the fraud was detected when the bank launched a probe into payment of Rs50 million as loan to a company named Pak-China Sost Port Company by its Gilgit branch. But the revelation could be just the tip of the iceberg because investigators have found that there were other bogus loans involving payment of Rs880 million.

The sources said that a number of companies and people had taken loans of millions of rupees against fake or non-existent collaterals, raising questions about culpability of top people in the bank's management who concealed such a huge scam from the audit department for three years.

The sources said that the fraud had been overlooked during the audit and now efforts were being made to determine why a proper scrutiny of the loan was not carried out.

A report sent to the bank president by the 'compliance group' said it had received a preliminary report from the NBP's human resource management and administration. The group received the complaint on Nov 12 and reported the matter to the State Bank.

The sources said that the bank was yet to lodge a complaint with police as required in such cases.

The Pak-China Sost Port Company was set up in 2002 as a joint venture with Pakistan's Silk Route Dry Port Trust holding 40 per cent of its shares and China's Sinotrans Xinjiang Jiuling Transportation & Storage Company 60 per cent.

The Chinese firm had invested cash while the dry port trust offered 'land'. The Rs50 million loan was given to six people — four Chinese nationals and two Pakistanis — against 'property, stocks and personal guarantees'. The six have been identified as Yuan Juamnmin, chairman of the company's board Prince Salim Khan, (vice-chairman), Chen Mingxing, Raja Shahbaz Khan, Hou Enzu and Ms Wing Ping.

The advice to sanction the loan was issued by Gilgit's regional office which had accepted Mir Ghazanfar Ali Khan, Chairman of the Silk Route Dry Port Trust, as a guarantor.

“Give me two months and I will be able to give you a clear picture of what has happened,” NBP president Ali Raza told Dawn.

He said he had ordered a thorough probe into the matter and held meetings with officials of the Northern Areas Chambers of Commerce and Industries.

The officials had assured the bank of their full support and cooperation, Mr Raza said.

“It is not a big issue,” Mr Raza said, adding that NBP was the only entity playing an active role in the development of the area by extending loans to businesses. The total size of the NBP loan in Northern Areas was Rs1 billion, he said.

When asked if the total amount involved in the fraud was about 80 per cent of the total the NBP had paid, Mr Raza said “It does not matter whether the amount is in thousands, millions or billions. Everything will be clear soon.”

It was pointed out that the audit of the Gilgit branch had been conducted by the same individual twice (in 2005 and 2007) and that there was no audit in 2006. And in reply to a question if there was any possibility of involvement of the bank staff in the fraud, he said “You know access to the Northern Areas is not as smooth as it is to Lahore, Karachi or Islamabad. Sometimes the audit can be delayed.”