The financial crisis at loss-ridden state sugar mills is now weighing on Sonali Bank. The bank has been unable to recover a large share of the loans it extended to these state enterprises over many years. The government guarantees backing those loans have also expired. As a result, Sonali Bank faces the risk of roughly 7,000 crore taka in loans turning bad.
In this situation, the bank has sought government intervention on loan repayment. It has also requested the issuance of government bonds against the outstanding loans, or fresh state guarantees, to ease the pressure on its balance sheet.
In an August 19 letter to the finance division secretary, Sonali Bank Managing Director Shawkat Ali Khan said the bank would have to set aside high provisions against the unpaid loans, which would sharply widen its provisioning shortfall and negatively affect its profits.
Sonali Bank has extended a combined 3,105 crore taka in loans over the years to the Bangladesh Sugar and Food Industries Corporation (BSFIC) and the nine sugar mills under it. Against loans disbursed to BSFIC alone, the bank is owed 2,762 crore taka.
With the loans unpaid for a long time, interest and other charges have added roughly 4,086 crore taka, bringing the total amount owed to 7,192 crore taka. After 253 crore taka in payments, the net outstanding balance stands at 6,938 crore taka.
Bank sources said a 1,000 crore taka government guarantee had backed the loans disbursed to BSFIC, but that guarantee expired last December. Six government guarantees issued in total to Sonali Bank against BSFIC and sugar-industry loans had previously been extended. But with those guarantees now also expired, fresh complications have arisen around the loans.
Part of the sugar mills’ loans was sanctioned and disbursed under tripartite agreements among BSFIC, the individual sugar mills and Sonali Bank. Because of the government guarantees and tripartite agreements, these accounts had until now been kept unclassified even after falling past due. But Sonali Bank now fears these loans could again be classified as bad debt in the September 2026 quarter.
To prevent the loans from being classified as bad debt and to settle the amount owed, Sonali Bank has for a long time been writing to various government offices. In March 2025, the bank asked the finance division to waive interest on the BSFIC and sugar-mill loans and to issue government bonds against the remaining recoverable amount.
On April 13 that year, a meeting chaired by an additional secretary of the finance division was held with representatives from the industries ministry, BSFIC and Sonali Bank. But Sonali Bank was never informed afterward of any decision or recommendation reached at that meeting.
Earlier this year, Sonali Bank again applied to the finance ministry on the matter. On January 6, it wrote to the finance division requesting either repayment of the outstanding amount or an equivalent government guarantee. It wrote again on April 26, repeating the request for a government guarantee. Most recently, on August 19, it sent another letter to the finance division making the same request.
Sonali Bank has said that to prevent the sugar mills’ loan accounts from being classified and to settle the outstanding amount, an urgent government guarantee, bond issuance, or repayment of the outstanding amount is needed.
The matter has also been discussed at meetings of Sonali Bank’s own Asset-Liability Management Committee (ALCO). At those meetings, it was said that steps should be taken to quickly implement the bank guarantee the ministry had assured would be provided to settle the sugar industry’s unreconciled loan accounts.
Bank officials said that with the government guarantees expired, the bank will, under Bangladesh Bank rules, have to set aside substantial provisions against these loans, which could widen Sonali Bank’s provisioning shortfall and hurt its profits.
A Bangladesh Bank inspection report has also asked Sonali Bank to report progress on bringing loans that exceed the single-borrower exposure limit back within the prescribed ceiling.
Sonali Bank’s managing director was called and messaged multiple times for comment, but no response was received.
The Bangladesh Sugar and Food Industries Corporation oversees 15 sugar mills. The government shut down six of them in 2020. Of the nine currently operating, most are running losses.
BSFIC officials say a “trade gap” arises from the difference between the sugar mills’ production costs and the government-set price. That trade gap can make it look like the mills are losing money because of it — but they said BSFIC is owed 8,041 crore taka from the government for the trade gap and subsidies as of the end of FY2025-26. If that amount were paid, they said, this kind of problem wouldn’t arise.
BSFIC Chairman Shamsuzzaman Suruj was contacted for comment and asked to speak in person at his office. A subsequent visit to his office, however, did not yield a statement.