Financial Crisis in State-Owned Banks
The net profit of Sonali Bank, the largest state-owned commercial bank, has drastically fallen during the January-June period of 2012. According to the latest data released by the central bank, Sonali Bank earned only Tk 890.16 million as net profit after taxation and provisioning, compared to Tk 9.96 billion in the last calendar year, 2011.
Reasons Behind the Decline
High-ranking officials of Sonali Bank blame the decline on several factors, including liquidity crisis, poor recovery, increase in classified loans, and frequent interferences by the government in loan sanctioning and recovery activities. A top official of the loan recovery and classification department of Sonali Bank stated, "We can never take any decision independently on loan sanctioning or taking action against loan defaulters due to direct interference by the government." Additionally, the official noted that big borrowers who received loans using political clout have stopped repaying loans, which has also affected the bank’s profitability.
Classified Loans and Liquidity Crisis
The classified loans of Sonali Bank have increased to around Tk 70.24 billion as of June 2012, compared to Tk 61.58 billion till December 2011. This significant increase in classified loans, combined with the liquidity crisis, has played a major role in reducing the bank’s net profit. Central bankers have expressed concern over the drastic fall in net profit and warned that the situation is going beyond the close supervision of the central bank.
Measures to Address the Crisis
The central bank has taken steps to address the crisis, including asking commercial banks to settle all overdue accepted bills amicutely within 15 days to ensure discipline in the banking sector. The Bank and Financial Institutions Division under the Finance Ministry has also provided guidelines to state-owned commercial banks to help bring stability. These guidelines include forming a taskforce to resolve audit objections, establishing a risk management unit in all banks, and resolving at least 5% of cases through alternative dispute resolution.
Performance of Other State-Owned Banks
In contrast to Sonali Bank, three other state-owned commercial banks have performed better during the January-June period of 2012 compared to the previous year. This suggests that the decline in net profit is not a universal trend among state-owned banks and that some banks are taking effective measures to improve their financial health.
Conclusion
The decline in net profit of Sonali Bank is a cause for concern, and the bank’s high-ranking officials have identified several factors contributing to this decline. The central bank and the Finance Ministry have taken steps to address the crisis, and it is essential for the bank to implement these measures to restore its financial health. The performance of other state-owned banks suggests that it is possible to improve financial health with effective management and supervision.
