Evaluation & Comments of World Bank
A project titled Enterprise Growth and Bank Modernization Project (EGBMP) has been undertaken by the Government of Bangladesh (GoB) in July, 2004 under the guidance of and financed by World Bank. This project was designed with the aim to enhance the capacity building of the entrepreneurial skill of the industry and trade related sector and modernize the bank management through a program of reforms of the Nationalized Commercial Banks (NCBs).
A. A World Bank Mission (Implementation Support Mission) visited Bangladesh over the period June 7 to 18, 2009 to follow up with the Government of Bangladesh on the progress of the banking component under the Enterprise Growth and Bank Modernization Project.
The mission comprised the Local Specialists / Analysts of World Bank, Dhaka Office as well as Foreign Specialists of Washington Office. The mission discussed the banking reforms with Ministry of Finance, the Bangladesh Bank (Central Bank of Bangladesh) and the Management of Sonali Bank Limited. The mission submitted the Aide Memoire which contained the following on Sonali Bank Limited (SBL) performance:
1.1 Cash recoveries from NPA This is one of the most notable achievements made by Sonali Bank Ltd. in the overall performance indicators. The reduction in actual NPL level is attributed to various methods used for cash recoveries of NPL including write-offs, out of court settlements, rescheduling and appointment of private collection agents as well as bank-wide efforts and introduction of an incentive scheme to reward employees for recovering non-performing loans. Against the recovery target of Tk. 500 crore in 2008, SBL realized Tk. 496 crore which represents almost 100% of the target and is the highest amongst SCBs in terms of amount recovered in cash. All these contributed to reduction of NPL level as a share of gross loans from 47 percent in 2007 to 33 percent in 2008. Despite the remarkable progress in 2008, the NPL level of Sonali Bank is still the highest among the three state-owned commercial banks (SCBs) and needs further reduction, including realization of loans from State-owned Enterprises (SOEs).
1.2 The result for Business and revenue growth indicators and non-funded income is encouraging. Revenue targets were met with "good loan" portfolio having a robust growth of 46% in 2008. Meanwhile, conversion of Bangladesh Petroleum Corporation (BPC) loan into government bond and increased market competition has seriously affected Sonali Bank's net interest income and some of the operating efficiency indicators due to the larger share of BPC loan in the bank's portfolio relative to other SCBs. Although net interest income is still negative, increased business activity from remittances, letter of credit facilities, other fees and commissions contributed to 29% growth in non-funded income in 2008, surpassing the target. Strong inflow of remittances has helped increase deposits compared to 2007. Nonetheless, the Bank performed comparatively better under this category with all indicators meeting the target, but narrowly missing (69% in place of 70%) the target for low cost deposit as percentage of total deposit.
1.3 Operating efficiency indicators Sonali Bank Limited (SBL) has achieved the net spread & net interest margin targets. But it could be better enough which is missed because of its larger share of low-yielding BPC bonds and concessional interest rates and this position is indicating that banking sector is becoming more competitive. The target for net operating income to total assets and cost to income ratio have not been achieved largely due to increased operating expenses on amortization of intangible assets by Tk. 350 crore and salary. Recent interest controls imposed by Bangladesh Bank will reduce the net spread in the banking sector, but Sonali Bank would have to make extra efforts to enhance its revenue generation ability in the face of escalating competition in the banking sector. SBL has the scope to enhance its revenue generation by improving the Advance-Deposit ratio (AD ratio).
1.4 Profitability As per audited financial statements, SBL made net income before provision and tax of Tk.161.6 crore in 2008, compared to Tk.424.6 crore in 2007. This decline in profit has been caused mainly by increase in operating expenses (e.g., salary and allowances increased by more than double in a year and amortization of intangible assets by Tk.350 crore in 2008). Though this reduction in net profit before tax had affected its ROA, it has improved to 0.47 percent in 2008 from a negative 6.17 percent in 2007.
1.5Staffing The target set for staff rationalization could not be materialized due to delays in implementation of VRS scheme. Staff cost as percentage of total operating cost reduced to 52.7% in 2008 from 75.6%o in 2007. Income per staff has also improved from 0.11 to 0.12 in 2008. However, staff expenses to total income has increased due to increase in staff benefits. Current figures may further deteriorate when Sonali Bank adopts a new pay scale without any adjustments in the total number of staff via a VRS scheme. The number of staff has been reduced by 703 in 2008, as a result of natural attrition and this trend will continue.
1.6The Net Worth of the bank continued to improve under the review period. Given the systematic importance of Sonali bank as the largest state-owned commercial bank, the capital position needs to be further strengthened. The amount of actual provisioning for loan losses remained higher than required provisioning in 2008.
1.7Computerization Target on computerization of branches has been met with 56% of deposits and 74% of loans procedures automated as of end 2008.
1.8

Disclosure requirements have been met with financial statements both for annual statement and quarterly provisional (within one month) completed within the prescribed time frame.

B. Performance Indicators for Sonali Bank Limited
The Implementation Support Mission of the World Bank visited the Bank recently on 16 November, 2009 and review the overall progress of implementation of the project with particular focus on the sustainability of banking reforms and placed its comment as follows:
A significant achievement under this project has been the improvement in the financial condition largely due to the Management Team that have been hired under this project. The Management Team have not only turned the bank into operationally profitable organization, but have also: improved customer services; introduced new products; developed policies and manuals for effective and efficient operations of the bank; revised the organizational structure of the bank; embarked on a comprehensive training program for staff; introduced incentives for better staff performance; and are going ahead with the computerization of the bank’s operation. The bank has maintained an increasing trend in deposits, loans, income, operating profits and net worth. Remarkable achievements have been made in recovering bad and doubtful loans and reducing the ratio of non-performing loans to total loans. Moreover, the Management Team is successfully meeting most of the Key Performance Indicators (KPIs) agreed for the bank.