Merger issue hurts banking sector again

BB gives wrong direction

Mahfuz Emran: Bangladesh Bank’s decision to merge banks has stumbled. There was a backlash after some banks were hurriedly called and ordered to merge before the policy was issued. Due to this, the pressure to withdraw individual as well as institutional deposits from some banks has increased. Although the banks are trying to prevent it in various ways.
Deposits in the banking sector are expected to increase every month by adding interest. However, it has remained around Tk 18 lakh crore for a long time without increasing. At the end of April, the amount of deposits of the bank sector stood at Tk 18 lakh 4 thousand crores. Against this, Tk 72,175 crore are to be kept in the central bank for the statutory cash deposit (CRR) at the rate of 4 percent. While many banks keep more than the prescribed limit, some banks have large shortfalls. In all, the deficit stands at around Tk 16 thousand crore.
Those concerned said that before the policy was issued, Bangladesh Bank imposed the decision to merge one bank after another. Many of those associated with the board or management of these banks did not agree with this process.
But some were forced to agree. No formal discussion was held with the experts on behalf of the central bank. Mergers are rushed without understanding the challenges that may arise. As the matter is brand new, so much panic has spread.
Bankers said that the liquidity crisis in the banking sector has been going on for quite some time due to various reasons including contractionary monetary policy to control high inflation, withdrawal of money from the market against the sale of dollars from the central bank. Every day some banks are borrowing from the central bank and other banks.
Meanwhile, fears over mergers exacerbated the crisis. Not just withdrawing deposits from banks that are in merger talks. Withdrawing from other banks. Many of those who are withdrawing money are keeping it in another bank. Some are buying high-interest Treasury bills and bonds.
Central Bank needs to announce a specific policy to improve this situation. Without saying in general, how the deposit will be returned, what will happen to that bank if it is not given – etc. Otherwise, the merger will not succeed. Rather, some good banks will be weakened due to panic.
Former Professor of Economics Department of Chattogram University Mainul Islam told that the way bank merger is being done will not solve the real problem. Rather, by imposing it, even good banks will be put in trouble. He said, the main problem of the banking sector is the liberal attitude of the government towards the borrowers.
As authority did not take any strict action against the willful defaulters, the defaulted loans have increased and now exceed Tk 4.5 lakh crore. The government has earlier taken various measures to hide defaulted loans. According to him, willful defaulters should be brought under punishment by setting up a tribunal. Without that, bank mergers will not solve the real problem.
Former Managing Director of Bank Asia Arfan Ali told, bank merger process is never smooth. As a result, the central bank needed to make substantial preparations before the merger began. Instead of leaving merger as the only option, alternatives should have been put in place. A bank may have a capital shortfall of Tk 2,000 crore. Now he had to say with time, if the capital is not provided within this period, the bank will not exist. Besides, depositors often do not get correct information. If something happens, the money will not be returned. That’s why the central bank has to be assured about this.
The managing director of a private bank told that the manner in which banks are being merged without specific policies will spread panic – this is normal. Because, in the policy given, priority is given for refund of deposit. However, it was not said whether the central bank will take responsibility if it is not returned.
Many financial institutions operating with central bank licenses have not returned the money, but nothing is happening to them. It is being said that no one will lose their job for three years after the merger. Now if someone is forced to resign by creating psychological pressure, it is not said whether protection will be given. Apart from this, the MD and DMD of the merged bank can’t go to the good bank whether there is liability or not. Again, it is not said whether the shares of those who are responsible for corrupting the bank will be confiscated. Most importantly, there is no guidance on what to do with bad debt.
According to the policy announced by Bangladesh Bank, mandatory bank mergers are scheduled to start after March next year. And for this, different processes have to be followed. However, central bank governor Abdur Rauf Talukder and policy advisor Abu Farah Nasser did not accept these. Nasser has so far called the chairman-MD of 10 banks and ordered the merger. Among them, on March 14, Padma Bank was decided to merge with EXIM. Earlier on January 30, Padma Bank Chairman Chowdhury Nafiz Sarafat resigned the day after meeting the governor. After this, on April 3, Bangladesh Bank asked for the merger of Sonali with BDBL and Bangladesh Krishi with Rajshahi Agricultural Development Bank. And on April 8, City and Basic Bank were asked to become one. UCB and National Bank were asked to merge on April 9 before Eid. Thus, the news of mergers tends to attract deposits.
After this, on April 15 and 16, the spokesperson of Bangladesh Bank called the journalists and said that no bank will be merged for the time being. Bangladesh Bank, however, has been claiming from the beginning that these banks are being merged voluntarily. However, after the meeting of the board of directors of Basic Bank on April 17 and the meeting of the board of directors of National Bank on April 27, the merger process of the central bank stumbled. In the board meeting of the two banks, it was said that they do not know about this, let alone a voluntary merger. The way in which two people are called and asked to merge, is also not formal. National Bank decided not to merge directly. Immediately after this, the central bank reconstituted the board of the National Bank. And the officers and employees of Basic Bank are agitating to demand non-merger.
Spokesperson and Executive Director of Bangladesh Bank Mehbaul Haque told that the merger process has not stopped. However, National Bank has been given time in a different context. Other banks will gradually come in the process of integration.