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The Financial Express

Sonali Bank plans Tk 100b perpetual bonds

| Updated: June 24, 2021 17:55:21


Sonali Bank plans Tk 100b perpetual bonds

Sonali Bank Ltd (SBL) has planned to raise a fund of Tk 100 billion through issuing perpetual bond to meet its capital shortfall.

The state-owned bank has already written to the financial institutions division under the finance ministry and requested it to take necessary steps in this regard.

"Since the bank is required to enhance its capital base to comply with the existing BASEL-III guideline, it needs to raise Tk 100 billion," SBL Managing Director (MD) Ataur Rahman Prodhan argued in the letter.

The bank had aggregate capital shortfall of over Tk 78.26 billion as of December, 2020, according to a provisional calculation under the BASEL- III guidelines.

A perpetual bond is often considered as a type of equity with no maturity date and that it is not redeemable.

"We sought funds to offset its capital shortfall," a senior executive at the largest state-owned bank told the FE, adding that the bank needed fresh funds immediately to comply with the BASEL-III guidelines.

Mr. Prodhan proposed three options to meet the capital shortfall - providing cash support from the exchequer, issuing government's guarantee to get the fund from the Bangladesh Bank (BB),and issuance of perpetual bonds.

If the government allows issuing perpetual bonds, the bank will issue shares against the received bonds in favour of the government, according to the SBL.

When contacted, a high official of the financial institutions and banking division informed that they received the proposal in this regard.

The Basel-III regulatory framework has raised the capital-adequacy requirement for the banks, and is being implemented since January, 2020.

The bank registered an operating profit worth Tk 20.25 billion and Tk 17.10 billion in 2018 and 2019 respectively. It earned Tk 21.75 billion in 2020, an official of the bank said.

However, he thought that it would not be possible for the bank to make up its huge capital shortfall through retaining profit as it has a hefty volume of non-performing loans and huge provision deficit.

The Covid-19 has been affecting the operations of overall banking sector while the SBL is one of the worst affected ones, according to a source.

The bank has also sought commission at a standard rate on the Tk 942 billion LC opened for importing equipment and services for the country's maiden Rooppur Nuclear Power Plant (RNPP) instead of providing fund from block allocation, according to the letter.

An official said that a total of Tk 50 billion in commission comes usually through charging 0.04 per cent against the LC opening for RNPP project.

Currently, the bank provides around 37 services free of cost to beneficiaries under the government safety-net programme while 14 services at nominal cost. It has also requested fixing a value provided against the services under the programme.

Besides, different types of pension schemes have been operated by the bank.

The bank also lends to different problem-ridden state entities, including Bangladesh Jute Mills Corporation (BJMC), Bangladesh Agricultural Development Corporation (BADC) and Bangladesh Petroleum Corporation (BPC) in the national interest.

Later, the loans are adjusted through receiving 20/30-yeartenure bonds. For this, the SBL had to count a huge volume of losses every year.

The Sonali Bank's financial strength weakened also due to lending irregularities. Its Ruposhi Bangla Hotel branch lent Hall-Mark Group and five other companies Tk 39.88 billion between 2010 and May 2012 allegedly on forged documents.

The little-known big borrower embezzled the whole amount in collusion with some dishonest bank officials, according to sources concerned.

The bank has around 1,215 branches across the country, according to the bank data.

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