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Bank merger without IFRS may not bring desired benefits

Published : Tuesday, 23 April, 2024 at 12:00 AM  Count : 275

Banks Merger and Acquisition (M&A) sans International Financial Reporting Standards (IFRS) will not bring synergistic benefits to shareholders, depositors as well as to public trusts.

The IFRS are a set of accounting rules for public companies with the goal of making company financial statements consistent, transparent, and easily comparable around the world. This helps for auditing, tax purposes, and investing.

To benefit from this amalgamation Bangladesh Bank (BB) should adopt IFRS which allows investors to get a clear picture on assessment of the risk-reward profile of the merged entity, facilitate easier scrutiny by the central bank and build trust and transparency in the banking system.

Currently the central bank is not fully following the IFRS as a result the commercial banks in merger and acquisition are not bound to follow these global standards in asset revaluation.

Hamid Ullah Bhuiyan, chairman, Financial Reporting Council (FRC) while talking with The Daily Observer on recent banks merger and acquisition said the BBs non adoption of IFRS the ongoing process of banks M&A will be challenging and it is uncertain of getting synergistic benefits.

He said in the undergoing M&A stronger banks are to absorb weaker ones with high Non-Performing Loans (NPLs) so it is very much sensitive in asset revaluation.

In this regard the central bank can instruct the banks to follow the IFRS-3, IFRS-10 and International Accounting Standards (IAS)-27 he said and added under these standards operations will be streamlined, costs would be reduced and investors and shareholders will get the real information.

The FRC chairman said asset revaluation in current market prices for M&A would create a disaster. If the current market price is higher than the original cost, theres a revaluation gain and this means the assets value has appreciated.

So to avoid disaster and to protect the shareholders and depositors rights the central bank should fully adopt the international standards in financial reporting.

On the other hand, M & A sans IFRS can lead to difficulty in understanding financial strength when a strong bank takes a weak banks huge NPL burden. Besides, without following IFRS, investors and regulators may be in the dark about banks true health.
Muhammad Farooq, former president, The Institute of Chartered Accountants of Bangladesh (ICAB) said though the central bank partially follows IFRS, the banks in merger and acquisition can fully follow the IFRS.

It is inevitably needed to follow the international standards in asset revaluation by the banks who have intended to do voluntary mergers and acquisitions, he said.

The former ICAB president said asset revaluation should be at current market value. He said in fixed asset revaluation under current market prices the value will rise but on loans it may differ that if loans are defaulted and not provisions it may decrease loan asset value.

He said in M&A there are matters of buying and selling so every asset should be reevaluated under international standards which are unlike general financial statements by banks.

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