BB rejects Padma Bank’s plea to merge with state lender
Staff Correspondent: Bangladesh Bank has rejected a proposal to bail out Padma Bank, a lender riddled with scams and irregularities, and advised it to seek investment from abroad.
Finance Minister AHM Mustafa Kamal had previously indicated that the floundering bank would have merged with or been acquired by a state-owned financial institution after an amendment to the existing law.
But abandonment by Bangladesh Bank put an end to such plans.
“We have informed them of this because they are already getting investment from abroad,” said central bank spokesman Serajul Islam. “If they manage to secure the funds from foreign sources, we will approve it. We have agreed to allow them to bring in funds from abroad.”
Finance Minister Kamal said on Sept 29, following a meeting of a cabinet committee, that Padma Bank would be handed a lifeline after the Bank Company Act was revised.
Then, on Oct 5, Bangladesh Bank rejected Padma Bank’s petition to be acquired by or merged with a state lender.
The government approved The Farmers Bank, owned by Muhiuddin Khan Alamgir, an Awami League Presidium member, in 2013. He resigned as chairman following pressure over loan scams and irregularities in 2017.
Chowdhury Nafeez Sarafat, the chairman of RACE Asset Management Ltd who also heads the board of trustees of the Canadian University of Bangladesh, took over as chairman of the bank in early 2018 before it was rechristened Padma Bank the following year apparently to restore its image.
State-owned Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank, and the Investment Corporation of Bangladesh injected into the troubled private bank Tk 7.15 billion, or 66 percent of its capital, at that time in a move to stop it from going bankrupt.
Struggling to continue operations having been paralysed by a liquidity crisis, the bank now seeks more funds, or a merger with or acquisition by a state-owned bank.
Ehsan Khasru, managing director and CEO of Padma Bank, raised concerns about its future in a letter dated Jul 8 to the Financial Institutions Division of the finance ministry.
With more funds for capital adequacy unlikely to come, Khasru described how the private entity is sinking even after getting the government funds, and changes in its ownership, management and name.
He said the bank was trying to turn around with the help, but it is facing a capital crisis as the “banking sector has been greatly damaged” by the coronavirus pandemic.
He says the bank’s expenditures exceed earnings.
Banks need to preserve a ratio of their capital set by the central bank. Padma Bank was Tk 21 billion shy of capital adequacy as of June.
In the current circumstances, the letter said, the bank urgently needs Tk 24 billion, which can come through the issuance of preferential shares and additional subordinate bonds.
Khasru said state-owned banks and financial institutions can provide Tk 18 billion through preferential shares and the rest, Tk 6 billion, can be made available through additional subordinate bonds.
Noting that getting funds in this way is a lengthy and complex process, Padma Bank sought acquisition by or a merger with the state-owned banks that had provided it with funds earlier on the government’s orders.
If they do not agree, Padma Bank is open to a merger or be bought by other government banks, such as Bangladesh Development Bank Ltd, he added.
Following the rejection of its petition by Bangladesh Bank, the financial institution is likely to seek capital from foreign investors.
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