Sonali Bank to inject Tk 171cr into UK arm
Sonali Bank has sought consent from the central bank to transfer Tk 171 crore to its operation in the UK that is suffering from cash crunch.
The board of the bank has approved the transfer of the money to increase the capital of Sonali Bank (UK) to 40 million pounds, after the capital base fell to 28 million pounds in 2015, which was inadequate to run its business.
Bangladesh Bank is reviewing the proposal and may give its approval, said officials at Bangladesh Bank and Sonali Bank.
Sonali Bank (UK) was set up jointly by the government and the state-run commercial bank in 2001 with a capital of 11.57 million pounds. The government owns 51 percent share while the remainder is held by Sonali Bank.
The government has transferred Tk 178.41 crore to the UK operation last July in proportion to its share. Md Obayed Ullah Al Masud, managing director of Sonali, declined to comment, but said their UK operation is profitable now.
In 2011, Sonali Bank was allowed to transfer 6.58 million pounds to boost its capital to 25 million pounds.
According to Sonali Bank, the UK operation has not been able to raise its business exposure to more than 25 percent of its capital since December 2014 because of its "Third Country Jurisdiction" status.
Moreover, the operation was facing an annual loss of 15 million pounds in retail and remittance businesses. Under these circumstances, it needs more capital to carry on business.
According to a report of BB, Sonali Bank (UK) was holding foreign currency beyond the authorised limit because of the liquidity crisis faced by the company.
The UK operation's foreign currency position was $90.84 million as of May 2016, which was 12 percent higher than the authorised ceiling of $76.15 million.
BB found that a large portion of foreign currency of Sonali Bank is kept with Sonali Bank (UK), which took the foreign currency holding above the permissible limit.
Despite repeated warnings from BB, the UK operation has failed to bring down the foreign currency holding to the authorised limit.
The central bank queried why the UK operation has not been able to reduce the foreign currency holding. In reply, Sonali Bank said the British operation needs huge amount of foreign currencies to deal with international trade.
Sonali Bank will have to count losses because of holding so much foreign currencies abroad.
For example, if Sonali Bank keeps $160 million to $170 million in reserves in its UK operation it misses out on business opportunities worth Tk 100 crore annually in Bangladesh.
At present, Sonali Bank (UK) has two branches in the UK – one in London and another in Birmingham. Two of its branches were shut last year due to financial irregularities and losses.