After a periodic lull, the state-owned Sonali Bank has resumed full credit operation with a target to disburse Tk80bn by June next, thanks to its robust growth in deposits and loan recovery.
The bank now stands on a strong financial footing due to robust deposit growth and a record recovery of classified loans mostly in cash from a few big defaulters during the last six months, Sonali Bank MD and CEO Pradip Chandra Datta told BSS.
The bank’s deposit jumped from Tk544bn to Tk634bn during the last fiscal and continued to rise. It recovered a record of nearly Tk29bn outstanding loan mostly in cash during the last eight months. This enabled the bank to start taking an intensive loan disbursement plan for financing projects, he said.
“We have formulated a cautious new credit policy to disburse nearly Tk80bn to real entrepreneurs with 100% recovery target. We have given instructions to all of our branches to choose real entrepreneurs and potential projects very cautiously in line with our new policy, and disburse loans quickly,” he said.
Of the total loans, officials said nearly Tk8bn would be invested in small and medium industries where the bank had a recovery success of more than 90%. Some Tk7.7bn has been allocated for loans to agricultural sector.
The bank is under pressure to reduce interest expense that jumped up by Tk3.10bn and to increase its interest income that has dropped by Tk1.54bn as on June 30, 2013, according to a Sonali Bank statement made on provisional figures.
Sonali Bank, the largest commercial bank in the country, became the discussion of the table in 2012 due to some big loan scams that swindled nearly Tk40bn from its exchequer especially in a time when it was suffering from the overburden of mounting classified loans of Tk20bn.
As a result, the bank fell into liquidity trap and its credit operations remained almost stooped. Higher deposit growth and impressive recovery performance have helped the bank to resume its credit operations, bank officials said.
The state banks are now facing a new crisis: an increasing mismatch between their credit and deposit growth. The banks’ deposit growth increased 18.14% year-on-year on August 1 while credit growth dropped by 0.39%, according to central bank statistics.
The reason for the deposit growth in public banks is the high public confidence, despite the state-owned banks’ deteriorating financial health, the World Bank said.
Declining credit growth is bad news for banks, as it means their main method of revenue, which is interest earnings on the capital they lend out, is shrinking. Loan disbursement is on a declining trend due to the ongoing political situation. If the increasing deposit cannot be invested, it may hamper the bank’s profitability.
“Our prime concern is to reduce mismatch of our funds as we have robust deposit growth,” Pradip Chandra Datta said.
Despite the loan scams, he said, general people still believe that depositing money in Sonali Bank is safe and their savings will remain protected. “Our deposits from rural people are on the rise, driven by increased inflow of remittance. The rural people deposit their remittance in our bank as we have branches in every corner,” he said.
Meanwhile, the beleaguered bank has become the big lender of call money market and it invests alone the highest amount of funds ranging between Tk10bn and Tk15bn in a day.
Due to mounting classified loans of Tk40bn and slow credit flow, Sonali Bank’s revenue fell down to Tk3.81bn and income to Tk600m as on June 30, 2013.
Capital deficit of the bank increased to Tk52bn as of June 30 this year while provision shortfall increased to Tk5.76bn. The number of losing branches of the bank dropped to 53 from 60 during the period.
“We hope the capital deficit and default loans will come down within December,” the CEO said.