Sonali Bank grapples with $755m in overdue govt import bills

Amid a continued dollar shortage, state-owned Sonali Bank is struggling to process letters of credit (LCs), particularly for goods ordered by government agencies, involving $755 million in import bills owed to international banks as of 11 June. 

The bank's Deputy Managing Director Subhash Chandra Das wrote to the Director of Bangladesh Bank's Forex Reserve and Treasury Management Department AKM Kamruzzaman on 11 June in this regard.

The letter, seen by TBS, requested urgent assistance from the Bangladesh Bank to supply the necessary dollars to settle outstanding dues for 72 import LCs.

When contacted over phone on 13 June, Sonali Bank's Managing Director Afzal Karim told TBS, "Most import LCs for government institutions are handled by Sonali Bank. The Bangladesh Bank provides dollar support for this purpose but the supply is not consistent."

"Nevertheless, Sonali Bank is trying to resolve import debts independently though making full payments is not always possible," he added.

A senior Sonali Bank official, speaking anonymously, said despite repeated requests, the central bank has not provided the necessary dollars. This has led to escalating debt to foreign banks, tarnishing Sonali Bank's reputation in international transactions and raising concerns about potential fines and late payment charges.

He said foreign banks are pressuring Sonali Bank to settle dues promptly through SWIFT or email in order to avoid penalties and late payment charges.

Typically, there are two types of LCs: Sight LC and Deferred LC. Under a Sight LC, if the documents are in order, the bill must be settled within five working days from the date of receipt. A failure to meet this deadline results in the bill becoming overdue.

In contrast, for a deferred or delayed LC, the bill is paid after 90, 180, or a maximum of 360 days following receipt of the documents, with acceptance conveyed to the foreign bank via SWIFT. A failure to pay within the agreed period renders the bill overdue.

The Bangladesh Bank supplies the necessary foreign currency for government institutions' imports, notably dollars for essential commodities such as fuel oil, food, fertiliser, and electricity. These institutions lack their own foreign currency revenue streams, so the Bangladesh Bank permits imports using dollars from the country's foreign currency reserves.

An official at Sonali Bank's treasury division, speaking anonymously, told TBS that the Bangladesh Bank has decreased dollar supply, even for emergency imports, to preserve foreign exchange reserves.

The daily dollar supply ranged from $40 million to $50 million until last January, but it has now declined to $10-$20 million. Last month, Sonali Bank's outstanding import bills soared to nearly $900 million, he added.

When TBS inquired about the availability of dollars for imports by government agencies, Bangladesh Bank spokesperson Mazbaul Haque advised sending the inquiry in written form via WhatsApp messaging. The inquiry was duly sent through WhatsApp messaging as instructed, but no response was received.

According to Bangladesh Bank sources, Governor Abdur Rouf Talukder verbally instructed Sonali Bank to exercise caution when opening new LCs.

In the first week of June, the governor told Afzal Karim, Sonali Bank's Managing Director, to open LCs only for importers capable of meeting their foreign liabilities from their own funds.

Subsequently in an online meeting, Afzal Karim relayed the governor's directives to branch managers of all authorised dealer branches handling foreign transactions, a branch manager told TBS.

However, when asked, Afzal Karim told TBS that the Bangladesh Bank had not issued any such instructions.

Sonali Bank has partially settled the liabilities of 72 LCs opened by various government agencies

Bangladesh Petroleum Corporation (BPC) currently leads the list of government agencies with the highest overdue import bill amount.

Other institutions facing overdue import payments include Bangladesh Telecommunication Company Limited (BTCL), Police Headquarters, Bangladesh Agricultural Development Corporation (BADC), Bangladesh Power Development Board (BPDB), Bangladesh China Power Company Limited (BCPCL), Power Grid Company Bangladesh (PGCB), National Telecommunication Monitoring Centre (NTMC), the Department of Food, and Ruppur Nuclear Power Plant.

Sonali Bank's foreign currency revenue stream remains modest, with remittances totalling $28.19 million received in May.

As of 5 June, data from the Bangladesh Bank's website indicates foreign exchange reserves of $18.67 billion as per the International Monetary Fund's BPM6 calculation system. Analysts suggest that the usable reserve is less than $13 billion.

According to an official of Sonali Bank, the largest state lender has been pushed into an unusual situation as the central bank reduced the supply of dollars to meet the forex reserve floor of $14.75 billion set by an IMF delegation in April.