Sonali Bank in doldrums

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Barely out of the woods after the Hallmark scam, Sonali Bank seems to be sinking into a quagmire following relentless political turmoil.
Falling income has been compounded by rising expenditure of more than Tk 6.5 billion in 2013 over the previous year.
Sonali Bank’s year-end report send to the Bangladesh Bank blames the Hallmark scam for much of its financial woes.
But one of its directors, economist Zaid Bakht says much of the trouble relates to the relentless political turmoil afflicting the nation.
The Bank is supposed to keep the central bank informed of its performance every three months.
Its year-end report says the Bank’s income from imports in 2013 has fallen by 32 percent.
Revenues from financing imports declined to Tk 195 billion in 2013 from Tk 287.28 billion in 2012.
That from exports followed the trend, falling by 27.92 percent.
In 2012, Sonali Bank’s revenue from export financing stood at Tk 84.70 billion which came down to Tk 63 billion in 2013.
The state-owned bank’s operating profit also plunged to Tk 3.18 billion in 2013 from Tk 11.03 billion in 2012.
Meanwhile, the bank’s expenditure went up by Tk 6.43 billion-to Tk 50.71 billion in 2013 from Tk 44.27 billion in 2012.
According to the report, Sonali Bank’s income from commissions fell due to less business from export-import trade, leading to a drop in non-interest incomes by Tk 4.65 billion in 2013 over the previous year.
Though its deposit rose, the total loan disbursement and current credit posted a decline.
Total loan disbursement and current credit stood at Tk 378.04 billion in 2012, which came down to Tk 343.19 billion in the last year.
Sonali Bank had Tk 58.05 billion worth of deposits in 2012 that rose to Tk 66.44 billion at the end of 2013.
In its report, Sonali Bank says the irregularities in its Dhaka’s AD (authorised dealer) branches, which surfaced in 2012 led to a drop in credit disbursement.
Authorised dealer branches are meant for foreign-trade related activities alongside regular banking services.
It also said that the total loan disbursement and current credit dropped after it paid off the Tk 25 billion loan of Bangladesh Petroleum Corporation (BPC).
“The bank’s income from opening LCs (letter of credits) came down as the import activities from the Hotel Sheraton branch and the Corporate Branch fell substantially, while food imports and imports by the BPC have gone down.
“Lesser export activities at the Hotel Sheraton branch, Narayanganj Corporate Branch and Foreign Trade Corporate branch also affected the revenue,” reads the report sent to the Bangladesh Bank.
Sonali Bank’s debt-financing went up as it collected deposits on higher interest rate.
But interest income fell as new loans were not disbursed and investments in the money market were made at lower interest rates.
Thus, the state-owned bank’s operating profit came down.
Still, the bank hoped in the report that by the end of 2014, it would have made up on the deficit.
The notorious ‘Hallmark scam’ surfaced in Jun, 2012 in a probe by the central bank. Hallmark Group took away more than Tk 26 billion from Sonali Bank’s in form of exporters’ credit, for which the bank had no worthy collateral.
The whole amount is now posted as default in Sonali Bank’s accounts.
Following the Hallmark scam, several banks stopped buying Sonali Bank’s guaranteed bond, the ‘Inland Bill’.
Moreover, a lot of foreign banks refused to accept LCs issued by Sonali Bank.
But, one of the bank’s directors, Zaid Bakht says that not only the Hallmark scam but the overall political and economic situation explained its poor performance.
“The whole banking sector went through a negative trend in 2013 due to a couple of financial scams including the Hallmark, which disrupted everything from the inter-bank transactions to LC opening and export-import,” Bakht told
Economist Bakht is also the Research Director at the Bangladesh Institute of Development Studies.
According to him, a big portion of the Hallmark scam was done through fudging of export income, which has now made the Sonali bank cautious and led to a decrease in that kind of business.
The bank’s revenue also fell due to investment in the Government Bonds, he added.
Bakht, however, says that the credit collection scenario was positive. “Sonali Bank’s credit collection in 2013 was better than any time ever. Especially, the cash collection is notable.”
Last year’s credit collection amounted to Tk 51.76 billion, a hefty rise of Tk 43.29 billion from Tk 8.46 billion in 2012.
Bakht said he hoped that it would further increase if the political situation in 2014 stabilises.