Sonali Bank's capital shortfall is gradually widening and its profit margin is declining too because of its opportunity cost for providing free or concessional services to the government.
To stop the erosion of its capital and profit, the state-owned bank has sought commercial values from the finance ministry against different government programmes it has implemented over the years.
As of December 2020, the bank's capital shortfall stood at Tk3,064 crore.
The free of cost services that Sonali provides to the government has a financial value amounting to around Tk2,614 crore a year.
In a letter to Senior Secretary of Financial Institutions Division Md Asadul Islam, the bank has asked the finance ministry to pay it Tk17,122 crore against the services it rendered on behalf of the government over the last decade.
Sonali Bank implements the government's social safety net programmes and many other development schemes.
For instance, as per the government's directive, Sonali Bank pays dues of beneficiaries of civil pension and public pension from its own funds, which costs Tk2,500 crore a year, the bank says.
In the aftermath, Sonali Bank has to wait almost a year for an audit and budget allocation to get that amount after placing demand for reimbursements to various ministries and divisions.
The bank suffers a loss of Tk177.43 crore at a 7% cost of funds on average per year because of the delay in reimbursements.
The cost of funds is the interest rate paid by lenders for the funds they use in their business.
Sonali Bank Managing Director and Chief Executive Officer Md Ataur Rahman, who sent the letter on 11 April, said half of the money spent every month in giving pension can be paid to Sonali Bank in advance to cover the bank's losses until the money is received from the government.
Alternatively, an initiative should be taken to pay interests at the cost of fund rate until reimbursements are done, he said.
Sonali also sells and encashes savings certificates through its 38 branches on behalf of the National Savings Directorate, the bank said, adding that the bank uses its own funds to pay interests on savings certificates and reimburse on behalf of the directorate.
After a long process, Sonali Bank received that amount from the Bangladesh Bank. The bank's investment amounting to around Tk1,800 crore gets stuck throughout the year for the purpose. Not only does the bank not get any returns from this investment, it is also being deprived of investing that money in other sectors.
According to the bank's estimate, it has to bear liabilities worth around Tk126 crore a year at an average cost of funds as the money is paid from depositors' money, inflicting a massive loss on the bank.
Some Tk42 crore is being spent annually for salaries and allowances of bank employees engaged in those 38 branches.
Besides, Sonali Bank has a total annual expenditure of Tk168.42 crore for sales and encashment of savings certificates, rents of branches and other expenses. Over the last decade, the expenses have reached around Tk2,021 crore.
The managing director of Sonali Bank has demanded a 5% commission from the National Savings Directorate for its service. He also sought interest at bank rate for the period - from the submission date of savings certificates' reimbursement bills to the Bangladesh Bank until the repayment - as compensation after using the bank's funds.
Sonali receives fees against the implementation of 14 out of 51 social protection programmes, such as old-age and widow allowances and honorariums of freedom fighters. It provides free of cost services for the remaining 37 programmes.
To implement these services, the bank spends about Tk357.60 crore annually on salaries and allowances of employees and workers in branches, rents, stationeries, networking and computer equipment.
"As there is no service charge or commission for these 37 services, the bank cannot achieve its annual profit target by meeting such expenses from its own fund," Ataur Rahman said.
In order to reduce a negative impact on the bank's profits and reduce the capital shortfall, it is necessary to impose at least a 1% service charge on these services, he added.
Mentioning a loss of around Tk1,508 crore a year for establishing as especial Letter of Credit of the Rooppur Nuclear Power Plant, the Sonali Bank managing director mentioned that the government had established the LC worth Tk 94,246 crore in 2017 with the bank to implement the project.
The commission rate is usually 0.4% against any government LC issuance, which is levied on a quarterly basis. In the case of this project, if the period of complete settlement of the LC is considered to be 7 years, an average commission of 3.5 years will be imposed against the LC.
According to him, it would have been possible to earn Tk1,507 crore a year and Tk5,278 crore in full-term in the commission. But the government has agreed to pay only Tk20 crore for the entire term. Sonali Bank has demanded a commission at a rate of at least 0.20%, highlighting the fact that it has been deprived of income amounting to around Tk5,258 crore.
Sonali Bank's accounts of losses do not end here. The bank has to count losses every year even after investing in the Bangladesh Petroleum Corporation (BPC), the Bangladesh Jute Mills Corporation (BJMC) and special treasury bonds.
It gave the BPC a loan at a conventional rate and later received special bonds from the government at 5% interest in 2007. The overdue loan now stands at Tk1,465 crore.
If the average interest rate of 9% on bank loans against government bonds for a period of 6 to 15 years is taken into account, Sonali Bank will incur a loss of Tk92 crore per annum and the accumulated loss up to the bond tenure will be Tk1,155 crore.
Similarly, Sonali Bank received bonds amounting to Tk393 crore from the BJMC in 2011 at 5% interest, which is valid till 2023. In this case, if the average interest rate of the bank loan is taken into consideration, its total loss will be Tk190 crore.
The bank has requested the Financial Institutions Division to take necessary steps to increase the interest rate on these bonds to the average interest rate of bank loans or 9%.
As an agent of the Bangladesh Bank, Sonali Bank carries out government transactions through a total of 732 treasury branches including 66 chest and sub-chest ones. In all districts and upazilas where there is no branch of the central bank, Sonali Bank operates on its behalf as chest and sub-chest branches.
Sonali Bank has to spend around Tk59 crore annually for the 58 chest and 8 sub-chest branches for deploying police squads, around Tk77 crore for salaries and allowances of bank employees, and Tk29 crore for other expenses including special vault maintenance.
Working as the agent for the central bank through other branches, Sonali Bank spends another Tk389 crore a year. Proposing that at least half of these expenses be repayable, Sonali Bank's managing director said their annual loss amounts to Tk267 crore in this way.
According to Sonali Bank, in 1999, a 0.20% commission was fixed on total transactions in accordance with the agency agreement in exchange for conducting treasury activities on behalf of the central bank. Over the last 22 years, expenses have increased for making services available at ease alongside technological development. Therefore, the bank has requested to double the existing commission rate.