January 19, 2012 Professor Syed Alamgir Jafar Institute of Business Administration University of Dhaka

Dear Sir, We are submitting to you our report entitled Management Issues of Sonali Bank : A Case Study as part of the course requirement. By working on this assignment we were given a chance to test our analytical ability and sharpen up our written communication skills. This report is essentially an analysis of several management issues and problems of Sonali Bank. The only authentic sources of information are the extracts from past annual reports, most of which, unfortunately, are not available on the web. As a result we were hard-pressed to find enough data that would give us a clear idea of what really went wrong with Sonali Bank. We are hoping that you will overlook minor inconsistencies found in the report. As per your suggestion, we included a section which demonstrations the valuable insights gained from a LEPEST C analysis. Thank you for giving us the opportunity to work on this assignment. It's been a real educative journey. If you have any questions about the report, please contact any of us at any time.

Sincerely,

Hasan (118)

Mohammad

Mohtarim _____________________________ _______ _____________________________ _______

Monamee Afroze Ishika (119) Mohammad Zulqar Nayen (126)

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Abir Mymuny (130) Md. Mohaiminul (150) Hasan

_____________________________ Khan _______ _____________________________ _______ _____________________________ _______

Table of Contents
TABLE OF CONTENTS.....................................................................................2 EXECUTIVE SUMMARY....................................................................................4 PREFACE....................................................................................................... 5 STATEMENT OF THE PROBLEM........................................................................6 ANALYSIS OF DATA........................................................................................8 EXECUTIVE INTERVIEW......................................................................................................... 9 METHODOLOGIES.........................................................................................10 SWOT
ANALYSIS:............................................................................................................. 10 ANALYSIS......................................................................................................... 11

LEPEST C

FORMULATION OF ALTERNATIVES.................................................................14 EVALUATION OF ALTERNATIVES....................................................................14 RECOMMENDATION OF STRATEGY.................................................................16 DECENTRALIZATION .......................................................................................................... 16 RISK MANAGEMENT .......................................................................................................... 17 RECRUITMENT PROCESS .................................................................................................... 17 INCENTIVES ..................................................................................................................... 17 PERFORMANCE APPRAISALS ...............................................................................................17 STATEMENT OF PLAN OF ACTION..................................................................17 DEVELOP
EMPLOYEE PERFORMANCE......................................................................................18

RECRUITMENT PROCESS..................................................................................................... 18 EMPLOYEE

INCENTIVE AND PERFORMANCE APPRAISAL................................................................19

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BIBLIOGRAPHY............................................................................................19

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Executive Summary
Sonali Bank Limited emerged as the largest and leading Nationalized Commercial Bank liquidating the then The National Bank of Pakistan, Premier Bank and Bank of Bahwalpur. The objective of this report is focused on prevailing problematic issues and formulating and recommending strategies to get rid of this situation. As the bank is government owned there is high amount of external environmental pressure on the organization which leads to management issues. Flexibility is required to reduce both evil power application and for constructing efficient decision. The problems are classified under management issues, HR issues and external Influences. Problems in human resource management in the bank create disruption in the normal, daily activities of the bank and customer service is being interrupted. Annual financial report 2010 of Sonali Bank Ltd, journals and articles, reports on Human Resource Management from SBL library and executive interviews are the main sources of data needed in preparing this report. Executive interviews was one of the important methods for data collection which has revealed many inside stories of the organization. Creative group problem solving was the main method for this case analysis where all the members participated and contributed in finding of solutions. The political pressure on the public institutions is not something new that we have to deal with. An anonymous agency may 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. Introducing advanced IT support for the human resources department can bring a new dimension of control to the managers and also can help to recover from currently prevailing problems. Influencing employees in a positive way through respectable incentives and due training will also be beneficial. To deal with the management issues of the bank, it can start with effectively decentralizing the managerial heads. The recommendations are provided in this report to use with care and integrity to bring a positive change in the bank in near future. The strategies that are recommended are needed to back by plan of action which are also stated at the final part of this report. Case Analysis: W501 | Table of Contents 4

Preface
Sonali Bank Limited emerged as the largest and leading Nationalized Commercial Bank liquidating the then The National Bank of Pakistan, Premier Bank and Bank of Bahwalpur. Sonali Bank Limited is governed by a Board of Directors, headed by the chairman. The bank is in the service industry and its goal is to 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. 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.

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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 Bank Limiteds 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 Case Analysis: W501 | Table of Contents 6

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 is 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.

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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

Table VI: Financial performance, management and technology condition of Sonali Bank

Financial Performance ROE as per 2008 Net Profit Nonperforming loan 0.010% BDT.2311million BDT. 61154 million Management Performance Governance Risk Management portfolio Mostly paper based accounting, corporate branches and one other branch is partially computerized Weak risk management due to technology and political pressure Technology performance ATMs services Online solutions Only very few ATMs implemented Internet banking and online solutions will take time to establish

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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. Case Analysis: W501 | Table of Contents 9

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 newspaper cuttings which was analyzed to get proper knowledge about the situation prevailing. The general methodologies are as follows: Past experience with similar problems or industries 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 has recommended 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 others. The strengths of Sonali Bank can be summarized below: It is the number one state owned bank, having the largest clientele. It is subsidized by the government. Case Analysis: W501 | Table of Contents 10

Employee satisfaction with the newly employed salary structure

Weakness:
These are the characteristics that place the bank at a disadvantage relative to others. The major weaknesses are listed below: Human resources information system is mostly paper based. Customer service department lacks IT supports.

Opportunities:
There are some external chances that can help the bank improve its performance, if these are utilized: Fresh business and IT graduates from leading universities. Potential high-profile clients. 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: Disruptive political climate Inflation Emergence of more private banks taking up market share Sudden change of policies in Bangladesh bank that might go against the Banks interest

LEPEST C analysis
The seven environmental factors of the LEPEST analysis are the following: Case Analysis: W501 | Table of Contents 11

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. Bangladesh government has a very 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.

1. Economic factors
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.

2. 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. Case Analysis: W501 | Table of Contents 12

3. 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 hampering the implementation of technology in the State-owned Banks. As the government is not successful in providing uninterrupted supply of electricity, the organization-wide automation is still out of reach.
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.

4. Legal factors
Bangladesh government is imposing new rules and regulations every now and then in hopes of improving the existing banking structure as well as reducing corruptions in government sector, which in turn may cause possible problems include stricter regulations and breaking down the power of the banking sector.

5. Ecological factors
Ecological factors will not be covered here since it will unnecessarily complicate the analysis.

6. Socio-cultural
As a result of the recent worldwide financial meltdown, people are becoming less and less trusting of banks. This recession also has an effect on how the people of Bangladesh perceive banks. Furthermore, people in our country now a days trust more in private banks because of their attractive packages geared towards different market segments.

7. Competitive:
Private banks have high competitive advantage over state banks (e.g.: Sonali bank Ltd.). Since they work for a limited high-profile clientele, it is possible to meet their needs quickly and efficiently while maintaining a high profit margin. Sonali bank Ltd., however, gets backing from the government. The bank performs a wide range of services on behalf of the government, thereby generating a steady revenue stream.

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Formulation of Alternatives
The application of methodologies has led us to formulating three alternatives which, if employed, can bring about a substantial performance increase in the operations of the bank. The alternatives are as follows: 1. Develop a management process which will be capable of altering the current problematic situation. 2. Restructure human resources policy and improve the recruitment process 3. Maintain political liaison and decrease the scope of influence in core banking

Evaluation of Alternatives
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 is 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.

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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

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. Introducing advanced IT support for the human resources department can bring a new dimension of control to the managers. The fact that multiple mass volume tasks can be automated makes this a very much feasible alternative and a strong competitor with the Case Analysis: W501 | Table of Contents 15

private counterparts in the banking sector. Evaluating the human resources database and matching them to the specific needs of the departments to identify the perfect suit is very effective in building a solid foundation on what could be a strong management for the bank in the long term. Furthermore, considering the large employee base of Sonali Bank and the huge number of recruitment every year, outsourcing the human resources is also a viable alternative. This will also ensure lack of influence in the recruitment process. Influencing employees in a positive way through respectable incentives and due training will be very much beneficial as this will create a sense of importance within the people and create responsibilities towards the organization as well as towards the clients.

Recommendation of Strategy
Although devising or recommending a strategy for the organization is something that should be done with a team of people with high level of experience and crucial analytical expertise, it is still a necessity for this report to be comprehensive that we write one. Therefore, any loopholes, however negligible or apparent, should be viewed with good consideration.

Decentralization
To deal with the management issues of the bank, it can start with effectively decentralizing the managerial heads, thus, increasing efficient information flow while making the sacrifice of losing conformity within the organization. But, to our knowledge and judgment this will be negligible compared to the gains observed in other areas. We can suggest following Prime Banks system of decentralizing through implementing a cluster management system. They have appointed a DMD at each headquarter who reports to the MD. This kind of management system can be followed by Sonali Bank Ltd which will be especially helpful due to their penetration to root levels all throughout the country.

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Risk Management
Also, the bank needs to maintain extreme care during loan restructuring, considering many factors among which identification of doubtful borrowers is the most important. This will substantially reduce bad debts for the bank and affect positively on the profit figure.

Recruitment Process
Automation of human resource processes is a necessity nowadays, which is no exception for Sonali Bank. Introducing technological support for the HR department will bring about massive changes, all for the good, very rapidly with due complementary training, which will increase employee satisfaction and motivation.

Incentives
Another way to increase motivation and responsibility is through incentives. With proper amount of monetary appreciation and motivation, employees will, from the inside, act as a barrier to sluggish and dormant banking activities.

Performance Appraisals
Lastly, to complement all of the above and develop a sense of responsibility within the organizational environment, we need to introduce performance appraisal, which will, if the above recommendations are used with care and integrity, the bank will surely see a positive change in the near future.

Statement of Plan of Action

Management of organizations is the key strength and control point for Sonali Bank where it can bring about noticeable changes which can deal with promising feedback with the problems identified in this report. A few key points that can be brought to light are as follows: Introducing sound standards for new credit operations Case Analysis: W501 | Table of Contents 17

Separating bad debts from bad borrowers Allowing internal audits to be conducted by internal regulatory bodies Supervisory agents assigned to process loans and other monetary deals Identify key time periods to assess demand of loans and other monetary deals

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 coordinate 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,

Develop employee performance

1. A performance appraisal system should be implemented 2. Compensation such as rewards and recognition will be based on performance measurements 3. Performance evaluation should be positive, not punitive

Recruitment Process
1. Employee sorting/selection process can be automated. 2. Bank can divide the employee needs in the banks according to different departments and recruit according to it. 3. Instead of taking all trainee and recruit in random positions, the management of this bank can rate the order and use unit based recruiting system.

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4. Recruitment process can be given to any outside agency (e.g. head-hunters) who are more capable of doing this job.

Employee incentive and performance appraisal

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 3. Train employees for compatibility reasons 4. A performance appraisal system should be implemented 5. Compensation such as rewards and recognition will be based on performance measurements 6. Performance evaluation should be positive, not punitive 7. Create a pool of the specialized employees who are ready to get transferred outside if the situation requires

Bibliography
1. Nowshin, Sabrina; Financial Performance Analysis of Sonali bank Limited ; September 23, 2010 2. Hoque, Kazi Mahmud-ul; Strategic Human Resource in Sonali Bank Limited, Bangladesh; March 3, 2011 3. Annual Report 2005-2010, Sonali Bank Limited

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