Sonali Bank\\\'s SOS for loan recovery

The beleaguered Sonali Bank, the largest of the country's public sector banks, has reportedly sought help of the Ministry of Finance (MoF) to recover the classified loans, amounting to Tk 2.57 billion, from various government ministries, departments and offices. The managing director of the bank has recently written to the head of the bank and financial institutions division to extend his help to this effect. The amount of its classified loans recoverable from the state agencies is not that big in comparison with the total volume of loans -- Tk190 billion, including unfunded loans worth over Tk 130 billion --  extended to these agencies by the Sonali Bank.

However, any amount of money is very important for the Hall-Mark scam-hit bank that along with three other state-owned banks has been performing poorly in recent years. The Sonali Bank's performance was found to be 'marginal' in the central bank's latest CAMELS (capital adequacy, asset quality, management rating, earnings, liquidity and sensitivity to market risks) rating done on December 31 last. However, that rating too indicated an improvement. The 2012 CAMELS rating had adjudged its performance as 'unsatisfactory'. Many attributed  Sonali's improvement in performance  mainly to the relaxation of the loan rescheduling policy by the Bangladesh Bank (BB) in the second half of the last calendar year. The Sonali's rating could have been worse had there been no such relaxation.

In fact, the central bank statistics on loan situation of banks as of March 31 last did show the declining financial health of the Sonali. The share of its classified loans soared to about 35 per cent of its total outstanding loans, followed by the Agrani Bank (18.56 per cent). What is more disturbing is that the bad loans constitute most part of the non-performing loans, meaning that the possibility of getting back the lent-out fund is very slim. But the bank can well expect the recovery of the classified loans belonging to different ministries and other government agencies. The amount is highly negligible - only 2.5 per cent of the total volume of classified loan of the Sonali. Yet the failure to pay loan by any government agency to a bank, be it a private or public one, does only highlight the poor management on the part of the agency concerned and lack of supervision by the controlling authority.

It is pertinent to mention here that the public sector banks are often forced by influential government quarters to extend loans to financially errant state-owned enterprises (SoEs). The MoF, at times, rather unwillingly has to entertain requests coming from other ministries to arrange loans for cash-strapped SoEs from state-owned banks. On occasions, such requests are made even for private borrowers. However, this practice does seriously affect both management and financial discipline in these banks that are supposed to operate in accordance with the provisions of the Bank Company Act and in compliance with the rules and guidelines issued by the central bank from time to time. Had the government followed the rules of the game properly, it could have avoided the frequent injection of capital into the state-owned banks.