The draft report revealed nine causes of loan default of Sonali Bank that holds 46 percent of the total default loans of four NCBs. According to the report, both the creditors and debtors are responsible for the non-payment of loans.

Over-valuation of collateral securities and over-invoicing of imports including capital machinery of industrial projects also resulted in loan defaults. Another cause is -- sometimes the borrowers divert the fund to unproductive purposes.

The bank officials are also responsible for the default as they do not choose borrowers carefully and perform regular and intelligent supervision, the report said. Besides, big borrowers look for advantage of rescheduling and interest remission.

However, some reasons are beyond the control of the bank and the borrowers. The report pointed out reasons like natural calamities, in case of crop loans, and business failures for various problems that contribute to the loan default.

The government assigned ASF Ahmed & Company, an audit firm, under the Nationalised Commercial Bank Restructuring Project to specially scrutinise Sonali Bank that has Tk 4,958 crore default loans as of December 2003.

The report will serve as the basis of a restructuring plan for Sonali Bank, sources said.

The auditor submitted a 600-page report earlier this month in which it analysed 4,093 accounts of 789 borrower groups who hold 86 percent of default loans with the bank.

The analysis shows that 70 percent of the defaulters are from Dhaka while 20 percent from Chittagong. Textiles (34 percent) and garment (17 percent) sectors are the biggest defaulters, followed by food (6 percent), jute (5 percent) and tannery (4 percent).

Rescheduling of loans has become a common practice, the report notes. "Borrowers tend to intentionally avoid repayment of loans to render them stuck-up in order to reap the benefit from rescheduling which is accompanied by some extent of interest remission."

Though infrequently, rescheduling is also allowed more than once, the auditor maintains with the suggestion that rescheduling should be allowed only after exhausting all avenues of recovery -- just short of legal steps and also very selectively.

"There should be a gap of minimum three years between the date of first rescheduling and the proposed second one," the auditor pointed out.

On the question of public sector default loan, the auditor observed that the defaulting public sector enterprises lack financial discipline and business attitude in their operations coupled with inefficiency and other problems.

"Loans to enterprises under various public sector corporations should be gradually curtailed and brought under banking and financial discipline," it added.

Analysing Sonali Bank's manpower, it found that the bank has 3,500 branches but only 91 managers received formal training in credit management.

The auditor recommended that the bank must be very careful in selecting borrowers and valuation of real estate collateral.