Finance Minister (FM) AMA Muhith's role smacks of double standard since just a year back he suggested merging some of the existing banks and, this year, he declared giving permission to three new banks.
Currently along with the first, second and third generation banks a couple of fourth generation banks are under pressure to maintain required capital adequacy, failing to maintain provisions against classified loans and banks are in volatile situation in stopping nonperforming loans, economists said.
The FM last year said, "The banks that are performing poorly should be merged with the better performers" a senior banker said while talking to the Daily Observer.
"It seems there are too many banks in our country, so we need laws to deal with the issues of merging banks while addressing the banks which are near the brink of bankruptcy", he further added by saying that the authorities need to be prepared to handle the issues and I expect merger."
Based on the economic reality around the world, banks are not shutdown when their financial performance gets poor but are merged with the better performing ones, the FM said.
Brushing all confusion and rumours aside concerning mergers and opening up of new banks, the FM few had declared a few days back that the government was about to issue licenses for setting up three new banks. Two of the three proposed banks are Bengal Bank and Peoples Islami Bank.
The name of the third one and its owner remained undisclosed.
The minister told this while he was talking to journalists at an event in the city few days back and also mentioned, "Not two, we're giving permission to setup three new banks."
He also said, in the meantime banks failing to operate properly will go for merger. "There is a provision in the banking law for merger. So, if any one fails, it will go to merger", he said.
He said still there is a potential market for banks since a large number of people still remained far from availing their services.
A senior Bangladesh Bank (BB) official said, "We do not see the need for new banks since some of the state-owned and a number of private commercial banks are not in good condition."
According to another official the BB rejected proposals for setting up three new commercial banks on the grounds of their deteriorating financial state; especially the last nine banks with their poor performance prevents the need for newer ones.
He said currently the fourth generation banks can open letter of credit and even they are not in a position to be guarantor for international trade.
He said the BB conveyed its opinion to the Banking Division when the central bank was asked to scrutinise the proposals of three new banks.
According to sources a ruling party lawmaker and owner of Bengal Group of Industries has taken a step forward to setup Bengal Bank while a Chittagong-based businessman MA Kashem pursued for Peoples Islami Bank.
At present, there are 57 banks in Bangladesh. Of them, 40 are local private banks, 9 are foreign and 8 are state-owned.
Officials at the central bank believe that the financial healths of many banks are not good and it would get even worse if there was no policy drafted and practiced by the regulatory authority.
As per a BB letter to Finance Ministry, as of December last year, the total default loans in the banking sector stood at 9.2 per cent and the capital adequacy ratio to 10.8 per cent of risk-weighted assets. Total stressed advances (defaulted and rescheduled loans) rose to 17.2 per cent, up from 16.1 per cent a year earlier.
Currently BASIC Bank is the worst performer among the public sector banks, among the other public banks, Sonali Bank's condition is quite bad. The situation may continue to get worse because the bank has to invest in areas upon pursuit from the government, which would not fetch much profit.
A senior economist in a private research institute said despite the economists' criticisms the BB awarded licence to NRB Commercial Banks, Meghna Bank, Midland Bank, Modumoti Bank, NRB Bank, NRB Global Bank, South Bangla Agriculture and Commerce Bank, the Farmers Bank and Union Bank in 2012-13.
Most of the directors and chairmen of the nine new banks are directly owned by several political leaders. Within three years of existence BB held at least three special meetings on setting up new banks and has warned the banks against rising defaulted loans and growing other irregularities.
