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Bangladesh - March 18, 2024

A dozen other banks are in merger list

Staff Correspondent : The decision to merge the weak Padma Bank with the private sector Exim Bank came to light recently. However, several other weaker banks are in merger talks with other banks. In all, dozens of banks including Padma may be merged. Among them, seven private sector banks, three public sector banks and one foreign owned bank have been mentioned. Bangladesh Bank is moving forward with the plan to reduce the number of banks to 50 through this. Currently there are 61 banks. This plan has been taken to ensure the protection of all depositors.
According to the sources related to this process, the merger of banks was discussed in a meeting of the policy makers of the financial sector recently. Discussions have gained momentum following reports of informal talks about which banks to merge with.
Earlier, the Central Bank has said that the banks will be merged on the basis of agreement by next December. If no one is merged in the normal process, the weak bank will be compulsorily merged with the good bank from next March.

However, the names of weak banks are being heard; Sector-stakeholders said that there is no possibility of improvement in their financial condition by next December. In such a reality, Bangladesh Bank has asked to continue discussions on which bank will be better for itself if some good banks are relatively weak.
The former governor of Bangladesh Bank Salehuddin Ahmed told in this context that the number of banks is more than the size of the country’s economy. Some banks are no longer able to operate. The decision to merge these banks is positive. If this is done, the uncertainty of depositing in the bank and not getting it back will be removed. There will be an urge to establish good governance in every bank. However, it is not enough to end the responsibility only through merger. The bank with which it is being merged should be closely monitored so that it does not go bad.
He said, in the case of the bank that is being merged with another bank, three things should be looked at. ensuring protection of deposits; Officers should not be retrenched and those for whom the bank has gone bad should not be directors of any bank and financial institution. At the same time, exemplary punishment should be given to those involved in the corruption of these banks.
It is known that to ensure the protection of all depositors, including institutional ones, the liabilities and assets of weak banks will be combined with good banks through bank merger. However, as a result of bad bank merger, the central bank will provide various policy support so that the good bank does not come under pressure. In this case, cash deposit reserve (CRR) and statutory liquidity reserve (SLR) will be relaxed in the central bank on the basis of poor financial condition of the bank. Again, in general, the rate at which the security reserve (provision) has to be kept against defaulted loans should be kept less in this case. Apart from this, a system will also be put in place so that all customers do not feel pressure to withdraw their deposits after coming to a good bank.
Banks that are in discussion
Among the banks under merger talks are weak state-owned BASIC, BDBL and Rajshahi Krishi Unyaan Bank in talks to merge with other state-run banks. As of last December, Basic Bank’s defaulted loans stood at Tk 8,204 crores, which is 63.76 percent of the total loans. Its provision deficit is Tk 5,195 crores. Capital deficit is Tk 3,150 crores.
Bangladesh Development Bank-BDBL was formed by merging Bangladesh Industrial Bank and Industrial Credit Corporation. However, the financial indicators of the bank did not improve. As of last December, Tk 982 crore or 42.46 percent of its total debt is in default. Even if no income is received against this loan, interest has to be calculated against the entire deposit. Due to this the bank is running in net loss year after year. There are talks to merge BASIC and BDBL with state-owned Sonali and Agrani.
Agrani Bank Managing Director Murshedul Kabir told that despite hearing about various discussions, he is not aware of any formal proposal. He feels that the merger initiative in the banking sector is positive.
Tk 1,534 crores or 21.37 percent of the defaulters of RajshahiKrishi Unnayan Bank, which is under discussion of merger. The capital deficit of the bank is Tk 2,472 crores. There are talks of merging it with the similarly poor Bangladesh Agricultural Bank.
Among the private banks, there is talk of merger of Padma as well as National, AB, Union, Global Islami Bank, Bangladesh Commerce, ICB Islamic and foreign National Bank of Pakistan.
The country’s first generation National and AB Bank will be merged with two other good banks. Tk 5,273 crores or 16.72 percent of AB Bank’s defaulters till last December. And Tk 12,368 crores or 28.92 percent of National Bank became defaulters. However, the two banks told that they do not know anything about the merger.
National Bank Managing Director Touhidul Alam Khan told that their board has been restructured. Now everyone is trying how to take the bank to a better position. He said that various talks of merger have been heard from different stages but nothing official has been heard. Tariq Afzal of AB Bank said that he has no idea about this.
There is talk that Bangladesh Commerce Bank may merge with a Shariah bank. As of last December, 51.65 percent defaulted against the bank’s Tk 2,339 crore loan. ICB Islami Bank defaulted on Tk 687 crore or about 87 percent against Tk 790 crore loan till last December. And there is a capital deficit of Tk 1,823 crores. The capital deficit is higher than the total debt mainly due to meeting the operating expenses in the debt collected each year. Out of the Tk 1,379 crore foreign loans of the National Bank of Pakistan, Tk 1,354 crore or 98.22 percent of the defaulted. Mainly due to irregularities in the management of the bank, this situation has happened. A few years ago, foreign ownership provided large amounts of capital. Despite this, the bank had a capital deficit of Tk 44 crore till last September.
Why merger initiative
Bangladesh Bank officials said that due to a few weak banks, the overall sector index is in a bad condition. High non-performing loans in the banking sector, capital shortfall, management weakness, liquidity crisis – these indicators are behind the poor condition of a few banks. Big frauds have also happened in these banks. The central bank is unable to regain confidence in these banks despite trying in various ways. There are no signs of improvement in the financial condition of these banks as they meet daily expenses with high interest deposits. The entrepreneurs of the banks are not providing new capital. Hence a part of the deposit is not refundable. As a result, banks in bad condition are losing deposits. This is increasing chaos in the financial sector. The central bank has given various concessions including preservation of safety reserves, capital deficit, but there is no improvement year after year.
An official of Bangladesh Bank told that approval of the bank is given abroad by area or product. However, all banks in Bangladesh are working with similar products and services in all areas. Multiple banks are running after the same customer by working like this without any innovation. Again, everyone is running after the same institution for big deposits. This leads to excessive interest or in many cases unethical transactions, which are inconsistent with a sound financial system. Taking these into consideration, the central bank has decided to reduce the number of banks in discussion with the government.
Arfan Ali, former president and managing director of Bank Asia, told that mergers or acquisitions are a common practice around the world. However, it is not enough to combine the financial reports of the two banks. Apart from deposit protection, few things should be considered very important before the merger. First, the merger should not result in a deficit in the capital adequacy of the good bank. Apart from this, the liquidity of the bank should be seen. He said, the portion of the shareholders of the bank identified as weak has already disappeared. However, the refund of the deposit must be confirmed. Otherwise, it will not be good to put any conditions on the refund of the deposit.
What will happen to officials?
The bank merger will have several conditions. This includes ensuring the protection of depositors and not forcing anyone out of service or forced to resign within the next three years. However, there is apprehension among the officials and employees of the banks that are in talks of merger. Fear is more among employees of private banks than government banks.
It is known that the central bank will conduct a detailed audit before the bank merger. Some directors or senior officers of the bank who are in a bad situation are panicking about this. Especially those who are involved in various corruption-irregularities, they may face punishment if the inside information comes out. The central bank has also said that those who have weakened the bank will not be able to become directors of any other bank or financial institution for the next five years. Apart from this, various disciplinary measures may be taken against them.

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