Sonali should jack up loan growth: governor

While the central bank has mounted pressure on private banks to reduce their loan-deposit ratio (LDR) to rein in aggressive lending, state-owned lenders, particularly Sonali Bank, is sitting on a huge amount of idle money for its reluctance to attract good borrowers.

Finally, the regulator has stepped in to address the issue, which is no way sustainable for a bank.

Bangladesh Bank Governor Fazle Kabir yesterday asked Sonali to accelerate its loan growth to make the business commercially sustainable.

He gave the instruction at Sonali's annual conference 2018, at the Institution of Diploma Engineers, Bangladesh (IDEB) in the capital.

Sonali's LDR stood at only 38.23 percent as of December last year, meaning the bank lends only Tk 38.23 against Tk 100 deposit.

Last year, the bank's total deposit increased by Tk 3,900 crore year-on-year to Tk 107,061 crore while its loan portfolio surged by Tk 3,822 crore year-on-year to Tk 42,276 crore, according to the bank.

“Lending by Sonali Bank is very low at a time when we are trying to stop over lending of private banks,” said Kabir.

The officials of Sonali became reluctant to lend after the Hallmark scam that hit the bank nearly five years ago, the governor said.

It seems that the officials are in a psychological pressure, as they might think less lending will keep them safe, he said.

“We have discussed the issue with anti-graft agencies. There is nothing to be feared if you lend properly,” said Kabir.

The governor assured Sonali's officials that the central bank will safeguard them if it lends in a proper manner.

Without boosting its lending, the bank will not be able to earn profits according to its potential, he said. The continued high private sector credit growth prompted the central bank to tighten money supply in the latest monetary policy that has recently been announced for January-June this year.

The BB also reduced the LDR limit to 83.5 percent for private commercial banks.

“We have lowered the loan ADR in the new monetary policy because of high lending of private commercial banks that has created imbalance in the money market.”

The new ratio ceiling will be adjusted gradually by June 30.

The governor also expressed dissatisfaction over the rising nonperforming loans of Sonali, which stood at 36 percent, which “is not acceptable”.

The number of loss making branches—181 out of total 1,211—is still very high, the governor said.

He suggested the bank take a time-bound action plan to turn the loss-making branches into profitable ones.

Finance Minister AMA Muhith who attended the programme as the chief guest suggested Sonali put more effort on KYC (Know Your Customer) in case of providing project loans.

At the same time, the bank has to bring out its branches from loss. “If the bank can do both things properly, it will overcome the loss caused by the low loan-deposit ratio.”

Every institution should be given freedom, then they will improve gradually, said MA Mannan, state minister for finance and planning.

Though the bank improved in many indicators, it still lags behind in improving LDR and reducing nonperforming loans, said Obayed Ullah Al Masud, managing director of Sonali Bank.