A fourth of Sonali's loans soured

Sonali Bank's woes are showing no signs of respite, with the latest data showing that more than one-fourth of its total loans have become default -- a development that is causing anxiety to both the finance minister and the central bank governor.

At the close of 2016, the country's second largest bank's default loans stood at Tk 10,247 crore against the total loans of Tk 38,431 crore. In other words, 26.66 percent of Sonali's loans have defaulted, up from 25 percent a year earlier.

The average amount of default loans in the banking sector is 10.34 percent, whereas it is 27 percent in Sonali, said Bangladesh Bank Governor Fazle Kabir.

Also, of Sonali's 1,208 branches 370 are loss-making, according to Kabir.

“If we look at different indexes of Sonali Bank there is not much scope for becoming optimistic,” said Finance Minister AMA Muhith at the bank's annual conference, held yesterday at the Diploma Engineers' Institution in the capital.  For instance, the bank's operating profit slumped about 51 percent from a year earlier to Tk 424 crore.

Total recovery against the default loans stood at Tk 1,288 crore in 2016, which was Tk 2,726 crore in 2015.

From the top 20 defaulters Tk 305 crore was recovered in 2016, while the amount was Tk 1,114 crore in 2015.

“Sonali was the biggest bank in the country a few years back. Now it is lagging behind slightly. I believe this is temporary. The bank will be able to reclaim its previous position very soon,” Muhith said.

However, he said there are some causes for frustration.

“Sonali has a large scale capital deficit. Its default loans and loss-making branches are more than one-fourth of the total. These indexes do not instil much hope. However, we have to be hopeful.”

Muhith said he has a target for Sonali: become the number 1 bank in the next two years.

“This is a big challenge. However, they will have to march forward.”

Muhith also touched upon the issue of a banking commission, a longstanding demand of various quarters. In his budget speech he also promised to form one.

However, yesterday he said there is no need for a banking commission as the government is running the sector cautiously. “No big crisis has been created in the banking sector.”

If the sector matures further, a banking commission may be required to review the existing laws, rules and regulations to see if they were robust enough.

“Maybe at the end of this government's tenure we can think over the subject and leave the idea of forming a commission for the next government,” Muhith added.

The country's banking sector saw many developments but the public sector banks do not seem to enjoy too many positive opinions, said MA Mannan, state minister for finance and planning.

“The situation needs to be overcome,” he added.

State banks dominated the banking sector once, but now their market share has shrunk to 27 percent, said Kabir, the BB governor.

“The motive of the private banks is to clock in profits, whereas the state-owned banks have to do many works for socio-economic development.”

As the regulator BB expects that the state-owned banks will establish good governance and corporate governance in their management, Kabir said.

He also emphasised giving more loans to small- and medium-sized enterprises and if necessary a target will be set.

Banking secretary Yunusur Rahman, Sonali Bank Chairman Ashraful Moqbul and Managing Director Obayed Ullah Al Masud were present.