It’s the cyber crime of the century – at least for Bangladesh.

The theft from the Federal Reserve Bank of New York of $81 million – one of the largest heists ever by hackers – has left a deep hole in the finances of one of the world’s poorest 25% of nations, and cost Bangladesh Bank Governor, Atiur Rahman, and his two deputies their jobs.

In New York – where the Fed released $101 million, before the return of $20 million by Sri Lankan bankers who spotted a typo – no heads have rolled. Fed officials say the payment instructions followed standard protocols and were authenticated by the SWIFT message system used by banks.

That’s not how Bangladesh sees it. Finance Minister Abul Maal Abdul Muhith holds the Fed responsible. While the Federal Reserve Bank of New York managed to block 30 transactions totaling $850 million being paid out of Bangladesh’s account, it allowed five to go through in a “major lapse on the part of FRB NY,” Bangladesh Bank claims in an internal document, according to a report on Bloomberg this week.

So where did the breakdown occur, and what does the saga mean for investors in Bangladesh?

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On the Emerging Opportunities show this week, Frontera’s Managing Editor Gavin Serkin talks with Exotix Partners’ analyst in Dhaka, Asif Khan, about the theft, its implications for investors, and the outlook for Bangladesh’s banks, companies and the economy.

Asif: It’s fair to say the compromise had been made at the Bangladesh Bank, and the security systems were inadequate.

This is why the Central Bank became a target in the first place and, as a result, the Central Bank had to take responsibility for their failure, ultimately leading to the resignation of the governor, and also the deputy governor.

However, in my view, partial blame has to go to others as well. The New York Fed did not get a confirmation from Bangladesh Bank, and I think they should have been a bit more suspicious, given the nature of the transaction.

And finally, the Senate hearings in the Philippines show bankers at RCBC, which is the 8th largest lender in the country, were actually involved in this whole scam.

Gavin: The New York Fed has been defending itself from this saga, saying that it took all the right steps, but you see a fault there?

Asif: The ultimate responsibility is at the Bangladesh Bank’s end because that is where the security failure occurred. But even if you think about our personal banking, the checks and balances exist when there’s a gap in the first line of defense, and that is why I say that there is a partial blame that goes there as well.

Gavin: As you mentioned, the Central Bank had to take the blame, and it was a fall from grace for Atiur Rahman who, as the Central Bank governor, was renowned for bringing financial inclusion through mobile technology in a way that very few other countries could claim. How big a loss is the ouster of Rahman for Bangladesh’s economy, and what’s the feeling about the new governor, Fazle Kabir?

Asif: The first thing to understand is that Atiur Rahman’s term as the governor was scheduled to end around August in any case because this was his second term and there’s no third term for Central Bank governors. The speed at which the government announced a new governor also signals that they had a candidate in mind already.

But things are shaken up at the Central Bank and employees are suffering from low morale at this point. And while Atiur Rahman was an economist by profession before being a governor, the new governor, Mr. Kabir, is a bureaucrat. He was formerly a finance secretary at the Ministry of Finance and the Chairman of Sonali Bank. This is the largest state-owned bank in the country.

I think people were a bit disappointed not to see an economist in the role. And also, vitally, people felt that the Minister of Finance has a little bit too much influence on the Central Bank’s banking supervision. So, hiring an ex-finance secretary does not give a lot of confidence from that standpoint.

Gavin: The banks aren’t on your list of “buy” recommendations. Why is that? And for investors active in this complex market, what should they be looking at?

Asif: At present, we are neutral on the banking sector. Firstly, there are a lot of under-reported non-performing loans and we feel that the recovery chance for these NPLs – a good part of them – is low.

Secondly, the return on equities is low, at about 11-12% for the reasonably good quality banks. In some other countries, we have seen that in risk-off modes like this, they can lend to the government and still make high returns. This is not the case in Bangladesh

In the banking space, investors should be focused on the really well governed banks like BRAC Bank.

The consumer sector is very interesting because we have a large population and we are very, very densely populated as well, and companies like Olympic Industries, the leading biscuits maker, and British American Tobacco, the leading tobacco company, stand out in the consumer space.

Given the large population, the pharmaceutical sector is growing as well, and the biggest pharmaceutical companies are also looking to tap into the export market.

And finally, I would mention Grameenphone, the largest telecom company, which looks fairly interesting following a selloff in the stock price.

Gavin: One factor that people will be fairly wary of in Bangladesh is the level of political violence that we’ve seen, and there’s a report on Frontera News showing how Islamic State has been making in-roads into Bangladesh, through alliance with a local remnant of the war in Afghanistan, the JMB. How much of a worry is this, firstly for you as a local resident, Asif, and secondly for investors?

Asif: A few of the global risk consultants have been flagging this risk, and I see where they’re coming from on this particular issue.

Personally, as a Bangladeshi who has lived in Bangladesh throughout his life, I don’t really consider this a very big risk. Firstly, the vast majority of the Bangladeshis who are Muslim, which is about 88% of the population, are quite moderate. They are not that sympathetic towards the extremists.

Secondly, income in Bangladesh is not that high. The economy has been growing, and these are conditions in which it’s hard for extremism to spread.

And finally, we have a government that is taking security concerns very seriously. It was part of their agenda when they came into power in 2009, and they have been really working hard to ensure that extremism is kept under control.

So, yes, there are definitely local groups which are sympathizing with ISIS, and probably even have communication, I’m not 100% sure, but I would consider this risk far down the list if I look at the major threats concerning the economy from an investor perspective.

To hear the show, click here: