Sugar-mill loans stuck in bank's throat as bitter pills

Sonali Bank seeks government bonds worth Tk 63.33 billion against unpaid loans of sugar mills and Bangladesh Sugar and Food Industries Corporation (BSFIC) stuck in the state-run bank's throat as bitter pills.

Officials have said the bank wants the bailout out of haste to reduce burdens of undeclared non-performing loans, provision deficit and capital shortfall.

Managing Director (MD) and Chief Executive Officer (CEO) of the bank Md. Shawkat Ali Khan recently sent in a request to the finance ministry to take necessary action in this regard.

Contacted, Mr. Khan said, "We have recently requested the finance ministry to issue bond in favour of Sonali Bank for settling the outstanding loans. If the government provides bond support, it would be helpful to strengthen the bank's liquidity base. Overall activity of the state-owned bank will be eased further."

Replying a question on interest waiver, he said, "We will take necessary step as per the existing policy if the BSFIC, mills want interest waiver."

A bank source says the government can issue bond on the total dues with interest or interest waiver from the total loan.

They say the state-owned commercial bank has to pay a hefty amount for provision against the loans owing to expiry of the repayment tenure, leaving it with a severe capital shortfall and a negative impact on profitability.

The state-owned sugar mills owe Tk 36.12 billion as agricultural loan, BSFIC Tk 24.39 billion along with other loans of nine sugar mills worth Tk 2.81 billion to the bank. These are net dues--loan with interest.

The banker says though the tenures of loans are expired, these are treated unclassified due to having government guarantees and tripartite agreements.

Besides, the bank has been reporting the loans as unclassified to the Credit Information Bureau (CIB) under Bangladesh Bank.

Because of reporting the loans as unclassified, the provision cell under the CIB of BB has asked the bank to provide detailed explanation as to why the loans are treated as unclassified.

A senior official at the finance division says, "We've received the proposal sent by the Sonali Bank and it is now under scrutiny. But no decision has been taken regarding the issue."

Currently, the paid-up capital of the bank is Tk 45.30 billion. Its authorised capital is Tk 60 billion.

The state bank provides services to its clients through 1,233 branches at home and abroad.

rezamumu@gmail.com