Consolidation will not work with out fining defaulters

Farhad Chowdhury: Bangladesh Bank recently announced the decision to merge five weak banks with five big banks. Private sector Exim Bank acquired the weakest private bank Padma Bank first, followed by the announcement of merger of City Bank with BASIC. Then came the announcement of Sonali Bank’s acquisition of BDBL, on 12 May 2024, the merger agreement was signed between the two banks. Then came the announcement of merger of Bangladesh Krishi Bank and RajshahiKrishi UnnyanBank. It has not been implemented yet.

Finally, on the day before Eid-ul-Fitr holiday, the announcement of merger of private bank UCB and National Bank came into notice. But, the newly constituted board of National Bank has opposed the announcement of this merger. They will get the National Bank back on its feet.
It is not yet known whether the decision to merge the weaker banks with the relatively stronger banks was ‘voluntary’ or not, or why and under what conditions it was taken. However, the allegation that Bangladesh Bank has pushed these banks towards merger is a serious allegation. If the ‘merger’ is not a ‘voluntary’ or self-motivated decision of the two organizations, there is a high risk of boomeranging. But it is understood that the decisions were not liked by the experts or the employees of those banks.
The officers and employees of BASIC have appealed to the Prime Minister expressing their desire to merge with another state-owned bank instead of merging with a private bank. Therefore, out of the five weak banks, the merger decision is under implementation in respect of three. After the implementation process proceeds, it will be understood whether the decision of merger is correct or not. Five more weak banks were supposed to be merged, but the decision has been put on hold. Without knowing the details of the terms, it may not be appropriate to comment on the merits and demerits of the merger at this stage. However, a few comments are in order.
Exim Bank was pressured by Bangladesh Bank to acquire another bank, but they chose Padma Bank. He must have some calculations behind this decision. The decision to merge Sonali Bank and BDBL is logical. Now there is no good reason to have a separate bank for long term industrial loans, as all commercial banks have become accustomed to long term loans by now. BDBL had previously existed as two industrial finance institutions-one Bangladesh Shilpa Bank, the other Bangladesh Shilpa Debt Sansthan (BSRS). For four decades these two institutions were saddled with bad loans. Later they were converted into general commercial banks but the banks failed. BDBL’s defaulted loans are long-standing. It is unlikely that they will be realized. I was waiting to see how Sonali Bank will handle the burden of so many defaulted loans. Merger of Rajshahi Krishi Development Bank with Krishi Bank is also logical. In my opinion, the decision to establish the Rajshahi Agricultural Development Bank separately was wrong, the responsibility of meeting the regional agricultural credit needs of the northern part of the country by expanding the agricultural bank branches was appropriate. BASIC was a very good state-owned bank, with a non-performing loan ratio of not more than 3-4 percent even a decade and a half ago. But Sheikh Abdul Hai Bachchu has been allowed to loot for a few years by retaining him as the chairman of this bank. After many days, Abdul Hai Bachchu was removed and replaced by a new chairman, but the bank could not be brought back from the decline. Now the defaulted loan of this bank is more than 68 percent. So it became impossible to run this bank separately. Therefore, it is a timely decision to initiate the process of liquidation of the bank through merger. But how other private banks will shoulder the burden of a declining state-owned bank is a matter of concern. After the decision of merger was announced, the deposit withdrawal of BASIC Bank came down. There is reason to fear that this may result in the bank failing to return deposits to its depositors at any time. The National Bank has been a victim of robbery since birth. Although known as one of the first-generation private banks after its birth in 1983, the bank has been on the rise for a few years after falling into the hands of Ran Haque Sikder and Rick Haque Sikder, two brothers of the Sikder family. (There is, of course, a rumor that the bank was looted by various leading businessmen from the beginning). In rescuing such a sinking private bank, UCB itself was threatened with crisis. The current chairman of the National Bank is himself a leading businessman-industrialist of the country, whose businesses will be profitable if the National Bank acquires them. As he undertakes to rescue the bank, the bank is likely to turn around. That is why the current decision of the National Bank can be shaped.
What needs to be emphasized is that the process of taking the banks to acquire five other banks through mergers without punishing those responsible for bringing these five weak banks to their current state is creating a major ‘moral hazard’. Padma Bank was born as Farmers Bank, its main entrepreneur was former minister of Awami League, MP and former bureaucrat of the government. Mohiuddin Khan Alamgir. It is impossible to collect the Rs 20 crore required to obtain a license for a new bank even from his lifetime legitimate income. He may have been rewarded by the government for his 1996 ‘Janata Manch’ role. But, since Farmers Bank was a victim of looting, the government tried to save the bank by naming it as Padma Bank. It is understood that the government’s attempt failed. But Dr. What was the punishment of Mohiuddin Khan Alamgir? Even if he did not get the MP nomination, he is still in custody! Anti-corruption commission finally filed a case against BASIC’s Abdul Hai Bachchu, he is now absconding. But a few years ago, Bachchu had destroyed the basic. Where, then, despite the opportunity, he was not arrested? Ran Haque Sikder and Rik Haque Sikder were caught red-handed several years ago in the case of forcing the Managing Director of Exim Bank to give a loan of 500 crore rupees. Did they get any punishment for that incident?
More importantly, the oldest and most serious problem in the banking sector is the problem of bad loans. Currently, out of the country’s approximately 18.5 lakh crores of bank loans, at least 4.5 lakh crores have become non-performing loans, but due to various reasons, only 1.45 lakh crores are being classified as ‘classified loans’ published by Bangladesh Bank every three months. The rest of the defaulted loans have to be kept out of the account for ‘technical reasons’. Of this, more than two and a half lakh crores of money loans are stuck in the pending cases of Court, High Court and Supreme Court Appellate Division for years, so technically they cannot be called ‘classified’. Added to this will be more than 65 thousand crore rupees of more than five years old ‘bad loans’, which have been ‘written off’ by various banks and they can no longer be included in the ‘classified loans’ published by Bangladesh Bank. In addition to this, a large amount of loans that have been irregularly ‘rescheduled’ and ‘overdue’ are being hidden, the actual amount of which is unknown even to Bangladesh Bank. Another category of loans is also irregular: those that are adjusted with new loans and shown as ‘regular’ by various banks. Bangladesh Bank is not able to control this matter properly. Therefore, adding up all the above mentioned categories of NPLs, it can be undoubtedly said that the problem of NPLs has become an ‘incurable cancer’ of the banking sector three decades ago. What is most unfortunate is that the government and the top officials of Bangladesh Bank, despite being aware of the dire dimensions of the problem mentioned above, have been devoting all their energies to sweep the problem of bad loans under the carpet for 30 years, they are not at all serious about solving the problem.
Rather, since 2009, the government has implemented the whimsical decision to license more than 30 new banks in phases, bringing the total number of commercial banks in the country to 61 before the merger decision was taken. The late former Finance Minister Muhith has always protested against the decisions of the authorities by taking a stand against granting licenses to new banks. Among the owners of these new banks are several of his relatives and there are some leaders of Awami League, who did not find it credible that they have the required capital of twenty crores for the license of the new bank. (Perhaps the ‘business managers’ of those banks have paid the license fees)! I protested with all my might against the arbitrariness of opening banks in this way, but that protest did not reach the top leadership. I inform the readers that the biggest strength of the country’s banking sector is the 1 crore 55 million expatriate Bangladeshis. No matter how they send remittances through formal channels or through hundi, a large part of it will be deposited in the bank for safety. As a result, there is a flood of deposits in the banking sector of Bangladesh. That is why banks have not yet faced a major liquidity crisis even though the problem of defaulted loans turned into a crisis three decades ago. As the government is also aware of the matter, the BNP or Awami League government was never committed to taking effective measures to recover defaulted loans. In 1998, the then President late Justice Sahabuddin in the first Nurul Matin memorial speech organized by BIBM proposed the formation of a tribunal to recover defaulted loans of the top 10 defaulters of each bank. Neither the then ruling government nor the coalition government of 2001-06 and the military-backed caretaker government of 2007-08 paid heed to the President’s proposal. Rather, after the BNP-Jamaat alliance came to power, hiding bad loans became a ‘culture’. Example: The Deolia Court established by Awami League in 1999 was completely disabled by BNP after coming to power in 2001. Even though the Deolia Act is still in force, the Deolia Court has not slept in the last 23 years. Rather, since 2001, the culture of hiding defaulted loans has been ingrained step by step in 23 years to such an extent that the recent former Finance Minister Mustafa Kamal has arranged for the Raghabboal debtors to disappear their names from the list of defaulters by giving some unprecedented ‘unreasonable and unfair benefits’. The country’s biggest debtor is now the prime minister’s adviser! Therefore, is it not absurd to expect ‘bank mergers’ to strengthen the banking sector by continuing the government’s pessimistic attitude towards bad loans?
Author: Former President of Bangladesh Economic Association and Ekushey Medalist Economist, Retired Professor, Department of Economics, University of Chittagong