Management Issues of Sonali Bank: A Case Study or An Analysis of the Management Issues of Sonali Bank PROBLEM STATEMENT: Sonali

Bank emerged as the largest and leading Nationalized Commercial Bank liquidating the then National Bank of Pakistan, Premier Bank and Bank of Bhwalpur. Sonali Bank Limited is governed by a Board of Directors, headed by the Chief Executive Officer & Managing Director. The bank is in the service industry and its goal is achieve the targeted profit. But the set goal is being difficult to achieve due to two significant issues, on one hand there are increasing strategic management problems and on the other hand, right men are not in the right position in the organization due to issues with human resource management. As the bank is government owned there is high amount of external environmental pressure on the organization which leads to management issues. Ministry of Finance and the regulatory body Bangladesh Bank has limited coordination due to which management face problems in operation. Again, a non elected body, Collective Bargaining Agent (CBA) often unethically creates pressure on management related several issues like, Promotional Activities, Loan Sanction, Interest Exemption, Transfer Processing. There is an increasing amount of bad debt seen in recent years due to increasing bad loans as loans are given to under qualified customers due to environmental pressure. Another huge problem lies in human resource management as there is no specific planning relating HR and no regular recruitment in the organization. There is employee shortage due to retirement and a huge gap is prevailing between approved strength and present strength of manpower. Again proper staffing pattern and segregation cannot be done due to employee persuasion. Also there is employee dissatisfaction in the bank due to pay scale difference. Consultants usually get 5-10 times more salary then members of top management. The payment different between the CEO and his immediate subordinate is also significant. As a result of these problems in human resource management in the bank, there is disruption in the normal, daily activities of the bank and customer service is being interrupted. OBJECTIVE: The report is undertaken to assess the current issues and problems in the management practice in Sonali Bank Limited Bangladesh with the prime focus to formulate and evaluation of alternative solutions to recover from the situation and recommendation of a strategy to be followed with the plan of action. METHODOLOGY: The process of completing the report would start from gathering information from both primary and secondary sources. For primary information the group would talk with the officials from the bank though due to confidentiality issues there is unwillingness of the informants to reveal their identity. Secondary information sources are the annual financial reports, other reports and journals and news paper cuttings which would be analyzed to get proper knowledge about the situation prevailing. Information analysis would be done through some sample methodologies like, SWOT Analysis, Environmental Scan, Stakeholder Analysis and Financial Ratio Analysis. The completion would be done by using these analyzed data and information to formulate alternative solutions and recommend a strategy with plan of action.

Applying the Case Approach

Sample Case Analysis Format 2. Analysis of the data: 3. Application of methodologies:

SWOT analysis:
SWOT analysis is a strategic planning method used to evaluate the Strengths,Weaknesses/Limitations, Opportunities, and Threats involved in a project or in a business venture. The result of our SWOT analysis on Sonali bank is shown here:

Strengths: Strengths are the core competency of any organization. These are the characteristics of the business that give it an advantage over othersThe strengths of Sonali Bank can be summarised below: 1. It is the number one state owned bank, having the largest clientale 2. It is subsidized by the government 3. Employee satisfaction with the newly employed salary structure 4. Weakness:
Thses are the characteristics that place the bank at a disadvantage relative to others. The major weaknesses are listed blow:

1. Human resources information system is mostly paper based 2. Customer service department lacks IT support 3. Opportunities: There are some external chances that can help the bank improve its performance, if these are utilized: 1. Fresh business and IT graduates from leading universities 2. Potential high-profile clients 3. the government has the resources to aid in its improvement process Threats:
These external elements in the environment that can cause trouble for the bank in the future:

1. Disruptive political climate 2. Inflation 3. Emergence of more private banks taking up market share 4. Sudden change of policies in Bangladesh bank that might go against the Banks interest

Formulation of alternatives:

Human resource is the main running power for any organization. People are the assets for the organization who make things happen. Because of the prevailing HR related problems, the quality level of services are at very low point for the bank. To come out of this, it is needed to plan and coordinating the strategies in such a manner which will carefully alter the current situation. The alternatives would be different for different problem scenario. They can be, Recruitment Process: 1. Employee sorting/selection process can be automated. 2. Bank can divided the employee needs in the banks according to different departments recruit according to it. 3. Instead of taking all trainee and recruit in the random position, the management of this bank can rating the order and unit based recruiting system. 4. Recruitment process can be given to any outside agency (eg head-hunters) who are more capable of doing this job. Employee incentive: 1. The company can provide facilities like accommodation, food, electricity etc for workers who have recently been transferred to remote areas 2. Arrange annual functions to give more incentive. In order to have a skilled manpower who can work outside Dhaka we need to do the following 1. Train employees for compatibility reasons 2. Create a pool of the specialized employees who are ready to get transferred outside if the situation requires

MICHEL Political :State owned banks are generally less profitable than private banks due to some unavoidable factors. It is seen that political pressure hampers the steady growth of banks profit, especially during election periods, when large amounts of loans are taken by key political individuals for which the bank has no provision to deny on the basis of CIB rating or internal rating for eligibility of the loan. The main reason for this is the foundation of an evil trio of politicians, influential business personnel and bank management, which plays an important part in accumulating bad debts over a number of years. This phenomenon has been consistently repeating itself no matter how many

times the two leading political parties are re-elected. Also a political pressure in the management could create frustration and employee ineffectiveness and is one of the key reasons for a disappointing profit figure for any and every state-owned banks, Sonali Bank is no exception. Therefore, we have used politics as a factor to consider the performance of the banks. Management Problems A management team which is unable to think outside the box and is attached to old formats and strategies to deal with problems are itself a liability to the bank rather than an asset. Thus, either they need to stop being preoccupied with old debts and start to focus adequately on current businesses, or they the management of the bank needs to be restructured with new people who will introduce sound standards for new credit operations. Also, the management body needs to separate bad debts from bad borrowers , thus, being aware of where to invest more so as to help the client to regain his business activities and regain his ability to repay all the loans, and also being aware of where not to invest more, thus, saving the bank a loss of more bad debts. This Spanish model of carving out bad debts also suggests that the bad loans be transferred to specially created centralized restructuring agencies. The bank should allow internal audits to be conducted by internal legal bodies and regulatory & internal control so that the compliance of the bank are looked upon in a manner which will bring about key points in the management process to be strengthened. This will also give an impression of solid management and regulatory structure, thus, improving the rating and reputation of the bank. Transparency Banks should, in their financial reports and other disclosures, provide necessary information to the public and provide timely information which facilitates market participants assessment of them. The following points can be followed as a guideline which should be addressed in clear terms and appropriate detail to help achieve a satisfactory level of bank transparency: financial performance; financial position (including capital, solvency and liquidity); risk management strategies and practices; risk exposures (including credit risk, market risk, liquidity risk, and operational, legal and other risks); accounting policies; and basic business, management and corporate governance information Unqualified Clients The political pressure on the public institutions is not something new that we have to deal with. Although the problem has been identified, the solution is yet to be devised. There can be a supervisory agent through which all the processed loan will have to go through to sanction the loan finally. Although this will make the process slower than before but it will inject a strict filter within the process. Some barriers to this will be that this agency will also be corrupted, thus, making this attempt futile. Therefore, we suggest either an anonymous agency which will look into these activities, or a strategic banking partnership with another state whose identity will be disclosed, but will be less prone to direct political manipulation.

Also, if we can identify key time periods where the loans are taken to be used in political activities, for example, before election, we can increase the interest rate and slower the loan sanction processing, which will demotivate the clients to take the loans, and delay the loans, thus, positively affecting the profit number however negligible it may be.

When Sonali Bank is paying the bond holders money to the wage earners, Bangladesh bank does not provide money on time or their transfer communication is very lengthy like 1 month to 3 months which also increases the cost.

Alternative Solutions: In order to solve management problems, we need to focus on the following: 1. Increase transparency done.. 2. Do internal audits on regular intervals done.. 3. Form and alternative body for a eita to likhsi.. ektu uprey dekh..ok

The reason there is such a shortage of trained employees 1. employee sorting/selection process is still not automated

Employee incentive: 1. The company can provide facilities like accommodation, food, electricity etc for workers who have recently been transferred to remote areas 2. Arrange annual functions to give more incentive. In order to have a skilled manpower who can work outside Dhaka we need to do the following Train employees for compatibility reasons Create a pool of the specialized employees who are ready to get transferred outside if the situation requires Ways to Improve payscale: 1. stop bribing 2. 100 percent transparency

Data Collection Methodologie s 1. Financial Report

4.3.2 Current performance situation and

Sonali Bank is responsible for the Central banks job in many places of the country. Total authorized capital of the Sonali Bank is BDT. 1000 crore and paid up capital of Sonali Bank is BDT. 900 core . there are total 1184 branches among which 341 are urban branches.The loan loss provision is very big every year.Financial return compare to the technology and management is very difficult to calculate. Total number of is and are . However there are 11 branch already shut down, it is not noted in the financial statement of the Sonali Bank. It is claimed that this bank does not provide any detail information in the financial statement thus the quality of the bank produces disqualification issues to some circumstances. Although the political pressure decreases from the state-owned banks and power of the top level management increase, still it is not up to the mark to continue a fully fighting bank in Bangladesh compare to private banks.
_________________________ table from michel report page 62____________________________

Net profit made by the Sonali Bank was Tk. 2311 million in 2008 which is very poor compare to other private banks. Besides, nonperforming loan was also higher about Tk. 61154 million means that this bank is performing very poorly. Sonali Bank net profit after tax is Tk. 2311 million a very minimum amount compare to its authorized capital of 10, 000 m. Paid up capital is Tk. 9000 million. Sonali Bank, provides information that, as per 2008, the total employees of the Sonali Bank was 21,839 whereas the total number of branches were more than 11,000. Sonali Bank does not have that kind of open options to see the total groups investment in terms of technology and management for the research, even many employees also do not know this options. But, as the invest in the Sonali Bank in terms of technology is very limited and banks are operated by the human resources with a partial computer system, the managerial contribution than of the technological contribution is very high for the financial return. Return on equity of the Sonali Bank was 0.010% where the asset return became 0.0047% which was very poor. Making the financial return, Sonali Banks experts are also thinking that technology and management are the best factors to enhance the growth of this bank. Thus current situation of the management and technology could provide the organizational environmental and forecasting market growth of this bank.

Executive Interview:
While preparing the report executive interviews was one of the important methods for data collection. Unstructured interview is liberty to discuss based on respondents independent reaction and so this was selected as the right method to take interviews. These interviews were taken face to face in both Bangla and English medium was used according to employee point of view. There was a verbal non-discloser agreement; the group would only use this information for study purpose because few responses were in disfavor of the state government and politics involvement in the bank. Summary of interviews: High degree of corruption is one of the prime reasons for poor performance many banks and likewise Sonali Bank Ltd. Due to necessity many alterations has been done from time to time but it was not enough to build a good governance and infrastructure. The bank is highly involved with politics like any other state-owned bank. Normal employees work only with the instructions and authorization of their immediate supervisor and other this is the ultimate reach to the management. Quick decision making always faces problems due to rigid and hierarchical management board. When the bank emerged after the independence the recruitment and selection were not organized for obvious reasons but with time the improvement in this sector has been very slow. Due to huge salary difference, many experienced and skilled employees has joined in many private organizations. The direct recruitment through the government is one big example about the political and corrupted recruitment system. Again the transfer and promotion process also depends on persuasion level and good relation with the management and political members.
4. Formulation of alternatives: Reduce political influences Improve HR

Improve management
o o

Seperate Governing body from management Diminish rigid management hierarchy

seek new competitive advantages that attract powerful clients

5. Evaluation of alternatives: 6. Recommendation of a strategy: build a skilled workforce which can adapt to the new technology 7. Statement of plan of action to be taken: Recommendations: Management:

Implementing an autonomous body to work independently so that the bank will influence to the management to avoid the political instability. Implementing flexible managerial decision making process can drive the organizational performance. Subordinates could get speech to raise the voice for the Company wellbeing. The structured finance policy and a sound liability management HR: Selecting skilled people without having the nepotism will reduce the moral hazard problem from the starting level of the employees orientation so that the root would be strong Good management indicates that the skilled employees should get the priority in terms of performance management regulations so that good reward system will make accurate employees satisfaction level. Training the employees will improve technical hand of employees so that the technology implementation will work faster and smoothly. Making the IT enabled infrastructure will eliminate the risk of the bank, make the accuracy of work, employees will be satisfied by taking competitive advantages to understand the vision of the company. Create the sound organization culture to motivate employees

Introduction:
Sonali Bank emerged as the largest and leading Nationalized Commercial Bank liquidating the then National Bank of Pakistan, Premier Bank and Bank of Bhwalpur. Sonali Bank Limited is governed by a Board of Directors, headed by the Chief Executive Officer & Managing Director. The bank is in the service industry and its goal is achieve the targeted profit. But the set goal is being difficult to achieve due to two significant issues, on one hand there are increasing strategic management problems and on the other hand, right men are not in the right position in the organization due to issues with human resource management.

Statement of the problem:

Rigid, hierarchical power application is one of the characteristic of the bank. This practice of management reduces the opportunity of effective co-operation and coordination. Flexibility is required to reduce both evil power application and for constructing efficient decision. Sonali Banks conventional rigid managerial culture is generating relational gap among employees and subordinate to boss. As the bank is government owned there is high amount of external environmental pressure on the organization which leads to management issues. Ministry of Finance and the regulatory body Bangladesh Bank has limited coordination due to which

management face problems in operation. Again, a non elected body, Collective Bargaining Agent (CBA) often unethically creates pressure on management related several issues like, Promotional Activities, Loan Sanction, Interest Exemption, Transfer Processing. There is an increasing amount of bad debt seen in recent years due to increasing bad loans as loans are given to under qualified customers due to environmental pressure. Another huge problem lies in human resource management as there is no specific planning relating HR and no regular recruitment in the organization. The recruitment system in the Sonali Bank is very much general. It is difficult to find out the special quality of people from a large number of interviewee without any screening system. Application process through all graduate members in country allows more administrative cost and the interview system depends on very much general other than any specific criteria of job positioning. Thus training cost after recruitment of the people also increases. There is employee shortage due to retirement and a huge gap is prevailing between approved strength and present strength of manpower. Again proper staffing pattern and segregation cannot be done due to employee persuasion. The transfer and promotion is very worst system because of political favor is mandatory to get transfer in good location. Also there is employee dissatisfaction in the bank due to pay scale difference. Consultants usually get 5-10 times more salary then members of top management. The payment different between the CEO and his immediate subordinate is also significant. As a result of these problems in human resource management in the bank, there is disruption in the normal, daily activities of the bank and customer service is being interrupted. The focus of this analysis is on both problems that higher management are facing while doing their job in the current manner due to managements own fault and external issues and also the discrepancies prevailing in human resource management. The specific problems which are considered are analyzed here while preparing this report are as follows; The problems are classified under management issues, HR issues and external Influences:

Management Issues: Centralized management leading to lack of efficiency. External Influences: Lack of Coordination with Ministry of Finance and Bangladesh bank Unethical pressure from Collective Bargaining Agent (CBA) on management practice in the bank. Increasing amount of bad loans given to unqualified customers due to pressure from external environment HR Issues: Lack of uniform regular human resource planning in the organization. Gap between actual and present strength of manpower. Huge salary discrepancy in pay scale creates dissatisfaction. Employees persuasion with the help of political backings causes interruption in customer services. Environmental Scanning:

LEPEST analysis
The six environmental factors of the LEPEST analysis are the following:

Political factors

State owned banks are generally less profitable than private banks due to some unavoidable factors. It is seen that political pressure hampers the steady growth of banks profit, especially during election periods, when large amounts of loans are taken by key political individuals for which the bank has no provision to deny on the basis of CIB rating or internal rating for eligibility of the loan. The main reason for this is the foundation of an evil trio of politicians, influential business personnel and bank management, which plays an important part in accumulating bad debts over a number of years. This phenomenon has been consistently repeating itself no matter how many times the two leading political parties are re-elected. Also a political pressure in the management could create frustration and employee ineffectiveness and is one of the key reasons for a disappointing profit figure for any and every state-owned banks, Sonali Bank is no exception.
Governmental stability:

Highly fluctuating due to political instability and external pressures Unemployment Policy etc.

Bangladesh government has a vary lenient unemployment policy for the state owned organizations. Sonali Bank is not an exception to that. In many cases unqualified people are seen clinging to their positions for years using political backing. Branch managers are responsible to

give point to the subordinates to promote the employees that are a cause of the moral hazard.
Economical factors
Inflation rate o Inflation has a direct correlation with the interest rate the bank receives from loans. Since June 2009 The dollar value of Taka has been persistently dropping. At present it has reached a record low. Since the operations Sonali Bank is based on our economy, it cant sustain unless it increases its interest rate on loans. This in turn puts off potential borrowers. Growth in spending power Rate of people in a pensionable age Recession or Boom Customer liquidations

Technological factors

The last generation recruited in the Sonali Bank lacks knowledge about the Information Technology (IT). Few of them have a very basic knowledge of the computer. Training for huge number of recruited employees is also a matter of investment, time and effort. Implementing technology and recruitment of technical employees will automatically get priority when this bank will get a corruption free deregulated governing body.

Environmental factors

Telecommunication and electricity problem is the big threat in almost everywhere in the country. Lack of electricity is one of the big problems to implement the technology in the State-owned Banks. As the government is not successful to produce electricity, an invisible influence to reduce the electricity use is important to the government. the branch was not computerized. Working hours for the customer increase but software based system decreases the office hours.
Energy consumption

Sever power shortages are hampering day to day work of the banks. Branches situated in remote areas cannot take advantages of IT for the want of electricity.

Legal factors Corruption in the banking sectors are not so but the overall country corruption affect this banking sector development. Therefore a corruption free country could let a good economy.
Unemployment law Health and safety Product safety Advertising regulations Product labelling etc.[5]

Ecology
affects customer's buying habits. affect the firm production process.

Socio-cultural
age distribution. education levels. income level. consumerism. diet & nutrition. population growth life expectancies

Religion

Potential supplies
labour supply o quantity of labour available. o quality of labour available.

material suppliers. o o delivery delay. level of competition to supplers,

service provider. o special requirement.

Analysis of Data:
For preparing this report, data was collected from both primary and secondary sources regarding the relevant issues. The sources which were used to gather information are listed below. From these sources valuable information about current serious issues which are prevailing has been gathered. Annual financial report 2010 of Sonali Bank Ltd. Journals and articles. Reports on Human Resource Management from SBL library. Executive Interview. Sonali Bank is responsible for the Central banks job in many places of the country. Total authorized capital of the Sonali Bank is BDT. 1000 crore and paid up capital of Sonali Bank is BDT 900 crore. There are total 1184 branches among which 341 are urban branches.The loan loss provision is very big every year. Financial return compare to the technology and management is very difficult to calculate. Executive Interview: While preparing the report, executive interviews was one of the important methods for data collection. Unstructured interview is liberty to discuss based on respondents independent reaction and so this was selected as the right method to take interviews. These interviews were taken face to face in both Bangla and English medium was used according to employee point of view. There was a verbal non-discloser agreement; the group would only use this information for study purpose because few responses were in disfavor of the state government and politics involvement in the bank. Summary of interviews: High degree of corruption is one of the prime reasons for poor performance many banks and likewise Sonali Bank Ltd. Due to necessity many alterations has been done from

time to time but it was not enough to build a good governance and infrastructure. The bank is highly involved with politics like any other state-owned bank. Normal employees work only with the instructions and authorization of their immediate supervisor and other this is the ultimate reach to the management. Quick decision making always faces problems due to rigid and hierarchical management board. When the bank emerged after the independence the recruitment and selection were not organized for obvious reasons but with time the improvement in this sector has been very slow. Due to huge salary difference, many experienced and skilled employees has joined in many private organizations. The direct recruitment through the government is one big example about the political and corrupted recruitment system. Again the transfer and promotion process also depends on persuasion level and good relation with the management and political members. Methodologies:

The process of completing the report started from gathering information from both primary and secondary sources. For primary information the group talked with the officials from the bank though due to confidentiality issues there is unwillingness of the informants to reveal their identity. Secondary information sources were the annual financial reports, other reports and journals and news paper cuttings which was analyzed to get proper knowledge about the situation prevailing. The general methodologies are as follows: 1. Past experience with similar problems or industries 2. Group problem solving Creative group problem solving was the main method for this case analysis where all the members with analysis of the data found during the course has come up with alternative solutions and recommend a strategy which can alter the current situation. while generating solutions past incidents with similar problems were into consideration. There were also some sample methodologies which were used during this case analysis. They are as following,

SWOT analysis:
SWOT analysis is a strategic planning method used to evaluate the Strengths,Weaknesses/Limitations, Opportunities, and Threats involved in a project or in a business venture. The result of our SWOT analysis on Sonali bank is shown here:

Strengths: Strengths are the core competency of any organization. These are the characteristics of the business that give it an advantage over othersThe strengths of Sonali Bank can be summarised below: 1. It is the number one state owned bank, having the largest clientale 2. It is subsidized by the government 3. Employee satisfaction with the newly employed salary structure Weakness:
Thses are the characteristics that place the bank at a disadvantage relative to others. The major weaknesses are listed blow:

1. Human resources information system is mostly paper based 2. Customer service department lacks IT support

Opportunities: There are some external chances that can help the bank improve its performance, if these are utilized: 1. Fresh business and IT graduates from leading universities 2. Potential high-profile clients 3. the government has the resources to aid in its improvement process Threats:
These external elements in the environment that can cause trouble for the bank in the future:

1. Disruptive political climate 2. Inflation 3. Emergence of more private banks taking up market share 4. Sudden change of policies in Bangladesh bank that might go against the Banks interest