Overcautious lending following Hall-Mark scam causes profits to nosedive in 2013

Sonali Bank continues to reel from the after-effects of the Hall-Mark scam unearthed about two years ago, with its operating profits in 2013 plummeting as fear-gripped officials hesitate to give out fresh loans.

The bank's full-year operating profits fell 70 percent to Tk 330 crore in 2013 from the previous year.

Pradip Kumar Dutta, managing director of Sonali Bank, said the major reason behind the drop in profits is the huge mismatch between deposits and credit. In 2013, the bank's deposit rose by about 15 percent but its loan portfolio shrank 9.23 percent.

The bank faced a severe crisis in liquidity management last year and even failed to maintain the mandatory cash reserve requirement ratio, which led to fines of around Tk 82 crore from the central bank.

To overcome the liquidity crisis, Sonali took a large amount of deposits at high interest rate in 2013, for which it had to pay Tk 600 crore more in interests.

“However, the bank's liquidity situation has improved now,” he said, adding that the bank currently invests Tk 4,000 crore to Tk 5,000 crore on average every day in the call money market.

The fall in commission from international trade financing is also to blame. Last year, the bank's import business slid 31.81 percent and export business 27.96 percent in comparison to 2012, causing its non-interest revenues to fall by Tk 380 crore from 2012's amount.

However, it was not all doom and gloom for the bank: not only did its default loans drop 23.48 percent in 2013, its recovery of default loans was at Tk 4,330 crore, which is 511 percent higher than in 2012. In 2013, the bank's default loans stood at Tk 9,638 crore.

Subsequently, the bank did not have any shortfall in capital and provisioning; rather it had a surplus in the two categories.
“Last year was the year of default loan recovery,” M Aslam Alam, secretary of the finance ministry's banking division, said at the bank's annual conference yesterday at the capital's Hotel Sonargaon.

He, however, termed the bank's accomplishments in 2013 “one dimensional and not multi-dimensional”, while calling for improved performance in all indicators.

The banking division secretary went on to call out the branch managers for their proclivity for deposit collection and disinterest for giving out fresh loans, due to which the profits took a massive hit.

“It is not acceptable that banks will collect deposit and keep it idle. It must be invested,” Finance Minister AMA Muhith said at the conference.

Sonali Bank Chairman AHM Habibur Rahman, however, acknowledged that many bank officials are afraid of giving out fresh loans due to the Hall-Mark scam.

“It is not proper to avoid risk by not giving fresh loans using the scam as an excuse,” he said, adding that loans have to be given by following rules properly and then there will be no problem in future.

He further said 2012 was a year of disaster for Sonali Bank due to scams involving the Hall-Mark Group, which left the state-run bank's image badly dented.

“After the new board took office, it fixed 2013 as the year of restoring the image. The bank is now overcoming the danger situation. Now the condition is gradually improving.”