Sonali Bank UK on the brink of insolvency

Sonali Bank's UK subsidiary (SBUK) is staring at insolvency after the Royal Bank of Scotland (RBS) restricted transaction on the Bangladeshi bank's dollar account for serious weaknesses in its anti-money laundering systems.

The Prudential Regulation Authority (PRA), the financial services regulatory body of the UK, has warned that it would declare SBUK insolvent if it fails to achieve efficiency in running the dollar, pound and euro accounts.

The developments were mentioned in a recent Bangladesh Bank letter sent to the finance ministry.

SBUK fell into financial crunch after the Financial Conduct Authority in October last year levied penalties on it for serious weaknesses in anti-money laundering systems. It was fined £3.25 million and prevented from accepting deposits from new customers for 168 days.

The PRA has now asked SBUK to appoint a project manager to overcome the ongoing crisis.

RBS has, however, kept open the other accounts, including those in pound sterling and euro of SBUK, on a conditional basis until December 31, according to the letter.

Obayed Ullah Al Masud, managing director of Sonali Bank, is now in the UK to assess the condition of the subsidiary.

SBUK is also trying to open a dollar account with Dubai-based Mashreq Bank to resume business operations as many Bangladeshi banks, which maintain nostro account with it, are suffering badly.

Nostro refers to an account that a bank holds in a foreign currency in another bank.

Though SBUK was established to provide banking services to Bangladeshi expatriates living in London, it only collects deposits. Even then, the deposit products are not lucrative enough to attract savers.

As a result, its depositor base has been shrinking for the last five years and the subsidiary incurring losses for years, according to the letter. Remittance sent through SBUK was down 6 percent, 5.67 percent and 2.40 percent respectively from 2013 to 2015, according to the central bank.

Though the financial health of the bank has been deteriorating, the management of the parent bank is not concerned about it, according to the letter.  In 1994-97, the London branch of Sonali Bank was shut down by the country's authority over negligence in following rules and regulations.

Later, the Bangladesh government, the BB and Sonali Bank jointly negotiated with the UK's Financial Services Authority, the then-regulatory body of the British financial services sector, to allow another bank to operate.

Under these circumstances, SBUK was set up jointly by the government and Sonali Bank in 2001. The government owns 51 percent of the shares and Sonali the rest.