Dhaka, Sept 6 (bangladeshinside.com) – Bangladesh’s largest government owned Sonali Bank Ltd’s loans worth Tk 134.36 crore or approximately 13.5 million Euro against inadequate collateral to GMG Airlines look unlikely to be recovered given the closure of the private carrier, government auditors found, reports the Daily Star.

The spot of financial irregularity at the country’s largest state bank was unearthed by the Office of the Comptroller and Auditor General (OCAG) during an examination of the bank’s books between February 3 and April 17.

Initially in 2006, the bank in return for adequate collateral extended Tk 80 crore or approximately 8 million Euro short-term over draft, Tk 12 crore or 1.2 million Euro term loan and $52.89 lakh stand-by credit limit to the private carrier.

Then in 2010, GMG sought for extension of the credit limit for the short-term loan to Tk 100 crore or 10 million Euro to lease two aircraft from a US company and operate them, which Sonali acquiesced to — without securing the requisite collateral.

As per rules, approval from the central bank is needed to increase the credit limit, but the OCAG found no document that proves the bank followed this procedure.

The loans turned bad or classified in March 2012 after the airline closed following years of losses.

A senior official of the audit department said the bank might not be able to recoup the loan as the airline was not operative. “As a result, the country will lose the funds,” he added.

Pradip Kumar Dutta, managing director of Sonali Bank, however, is hopeful. “We have rescheduled the loan after taking the required down payment as part of the recovery process,” he told The Daily Star.

Meanwhile, the audit report found that the bank had rescheduled the loan in December 2012 for three years, which, however, never took effect due to being in violation of central bank regulations. Bangladesh Bank rules stipulate that loans can be rescheduled for at most a year.

When asked, Dutta said the loan has now been rescheduled according to BB regulations. “If the airline fails to pay us within a year, its current owners will.”

GMG started its commercial operation in 1998 as the country’s first private carrier. The airline ran into choppy weather following the global recession in 2008 and the price hike of jet fuel on the international markets.

Officials of GMG Airlines did not respond to the queries of The Daily Star.

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