Stable banks concerned over merger initiative

Special Correspondent : The banking landscape in Bangladesh is experiencing a seismic shift as stable banks grapple with the initiation of a merger process aimed at integrating weaker institutions into stronger ones. The recent Memorandum of Understanding (MoU) signing between Exim Bank and Padma Bank has kickstarted this consolidation effort, sparking apprehension among directors and officials of stable banks.
There’s a prevailing fear that such mergers might inadvertently burden financially sound banks with the liabilities of weaker ones, potentially destabilizing the entire sector. With Bangladesh Bank contemplating the merger of seven to ten struggling banks, the pressure on stable banks to participate in these consolidations is mounting.
Selim RF Hossain, Chairman of the Association of Bankers Bangladesh (ABB) and Managing Director of BRAC Bank, emphasized the importance of consultation in ensuring the smooth execution of these mergers, expressing hope that decisions would be made transparently and collaboratively.
Concerns have been particularly raised about banks like National Bank, which are grappling with significant crises. Reports suggest that the amount of defaulted loans in National Bank is substantially higher than officially documented, casting doubt on the true health of the institution.
While many stakeholders agree that reducing the number of operating banks through mergers is a step in the right direction, there’s a consensus that it must be executed judiciously, with a comprehensive policy framework in place. Rushing through mergers without adequate planning could lead to adverse outcomes.
Former Bangladesh Bank Governor Salehuddin Ahmed cautioned against pressuring stable banks into merging with weaker ones, stressing the need for a voluntary approach. He underscored the importance of addressing systemic issues within the banking sector, such as nepotism and undisclosed bad loans, alongside consolidation efforts.
Despite assurances from government sources about the sector’s health, the reality paints a different picture. The staggering amount of defaulted loans, coupled with undisclosed vulnerabilities and hidden bad debts, highlights the magnitude of the challenges facing the banking sector.
The recent focus on mergers comes amidst efforts by the central bank to address systemic issues within the sector. However, there are concerns about the effectiveness of these measures, with reports indicating little progress in resolving underlying issues within struggling banks.
As the banking sector braces for further consolidation, stakeholders are urging caution and comprehensive reform measures to ensure the long-term stability and integrity of the financial system.