Sonali's SoS for capital support

The state-owned Sonali Bank Ltd (SBL) has sought guarantee worth Tk 60 billion from the government to tide over its capital shortfall urgently, officials said.
The SBL also requested the government to pay off the commission against the hefty Tk 942-billion letter of credit (LC) it had opened for importing equipment and services for Rooppur Nuclear Power Plant (RNPP).
The commission amount stands at about Tk 50 billion, a bank official said.
As of September last, the total amount of classified loans with the SBL stood at Tk 127.77 billion.
Some 93 SBL branches made losses in 2018.
On January 10, SBL managing director Obayed Ullah Al Masud wrote to finance ministry with a plea to resuscitate the institution.
"The SBL has sought issuance of government's guarantee worth Tk 60 billion to reduce its capital shortfall," said an official of the bank.
"The country's largest state-run bank needs an urgent cash injection," he told the FE.
When asked, a high official of the financial institutions and banking division said, "Last week, the SBL sent a proposal, seeking funds to meet its capital shortfall."
An insider said Sonali Bank needs to strengthen its capital base to comply with the Basel-III banking guideline.
Explaining the guarantee term, he said this will not be a traditional guarantee. When the government assures the bank of its guarantee and the central bank will raise the capital status as per the Basel guideline.
Meanwhile, the SBL has asked for paying off commission money against the LC it had opened for importing equipment and services for the RNPP.
But the government, instead, has made a move to provide the SBL with Tk 400 million in two equal instalments as block allocation, the official said.
The bank could get some Tk 50 billion if the government pays off the actual commission, he told the FE.
In this case, he said, the government may not have to provide the guarantee the bank has sought for recapitalisation.
However, the state-owned banks tend to be soft on commission recovery against government LCs.
Currently, the bank provides 37 services free of cost to the beneficiaries under the government's safety-net programme and 14 services at nominal costs.
It also operates different types of pension schemes.
The bank also lends to troubled state entities like Bangladesh Jute Mills Corporation, Bangladesh Agricultural Development Corporation and Bangladesh Petroleum Corporation.
The loans are later adjusted through 20- to 30-year tenure bonds.
For this, the SBL has to count losses estimated at Tk 10.60 billion every year, the letter reads.
The institution's financial strength also weakened following some lending irregularities.
Its Ruposhi Bangla Hotel branch lent little-known Hall-Mark Group and five other firms Tk 39.88 billion between 2010 and May 2012 on forged documents.
The swindlers embezzled the whole amount that belonged to depositors in collusion with some dishonest bank officials.
Hall-Mark alone gobbled up over Tk 29.64 billion, T and Brothers Tk 7.37 billion, Paragon Group Tk 1.61 billion, Nakshi Knit Tk 799 million, DN Sports Tk 382 million and Khanjahan Ali Sweaters Tk 67 million.
In the middle of February 2018, the government moved to give funds to replenish capital of the state-owned banks (SoBs) that suffered such crunch.
The financial institutions division under finance ministry held a meeting with SoB managing directors and representative of the Bangladesh Bank.
The then Secretary of the financial institutions division Eunusur Rahman chaired the meeting.
The government had earmarked Tk 20 billion as budgetary allocation for recapitalising the banks in need.
The Basel-III regulatory framework has raised capital-adequacy requirement for banks that most SoBs fall short of.
According to the data available until September 2018, the SBL had a capital adequacy of over Tk 8.48 billion.
It had a capital shortfall of Tk 66.02 billion in June.

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