After the banking sector has been sickened over the decades of indifference of the relevant authorities including the Bangladesh Bank (BB), involving non performing loans and the defaulted loans by trillions of taka the central bank has recently initiated steps to merge underperforming banks with stronger counterparts in order to save weak banks in the sector creating anxiety and uncertainty among the bankers and their clients.
According to industry insiders, BBs decision to merge different banks has sent a wave of fear among depositors, stakeholders, bankers, and directors. The idea has also sparked criticism and flaks from the concerned bankers, economists, think tanks and experts who thinks that the merger between a sick and a healthy bank will not be able to mend the problems of the sick bank, but will tend to sicken the healthy one. They think that the merger plan if adopted would give impunity to the people who are responsible for loan default and forgery.
The concerned people assert that the lack of transparency in the bank merger process, particularly concerning the management of default loans and issues of accountability within weak banks burdened by default loans. The merger will overlook the main problem of the banking sector and gives impunity to the factions responsible for loan defaults and forgery.
It will exacerbate the culture of loan defaults by protecting the people responsible for loan defaults and forgery under the guise of mergers, which are clear attempts to compel good banks to digest weaker ones as a result of their success. This has sparked an atmosphere of anxiety and restlessness across the entire sector.
The proponents of the merger believe that simply merging banks, without ensuring effective accountability-based good governance to address the basic challenges in the banking sector, will resolve the problem or safeguard the interests of clients. But in fact it is unrealistic, according to experts in banking sector.
Meanwhile the provisions of the merger policy have been severely criticized as the directors and top executives of underperforming banks can return to the board of the merged bank after a five-year break. These provisions are in fact rewards for the perpetrators behind the banking crisis with impunity rather than holding them accountable.
After the formal declaration of Exim Banks merger with Padma Bank, eight other banks have shown their interests for merger. Among those Bangladesh Development Bank intends to merge with Sonali Bank, and Rajshahi Krishi Unnayan Bank with Bangladesh Krishi Unnayan Bank.
BASIC Bank would soon merge with City Bank and National Bank with UCBL. However, a recent rush to withdraw money from the BASIC Bank and National Bank is worsening the situation. In recent developments the BASIC Bank employees have shown their unwillingness to be merged with City Bank in fear of job loss.
Officials said almost Tk 2,000 crore was withdrawn from the bank in a couple of days in the week before April 18, after the bank desired to merge with the City Bank.
In 2014, a central bank investigation found BASIC Banks former Chairman Sheikh Abdul Hye Bacchus involvement in embezzlement of Tk 4,500 crore. This ultimately diminished the banks financial health from which it is yet to recover. As of December 2023, the banks bad loans stood at Tk 8,204 crore, which is 64 percent of its total disbursed loans.
National Bank is also struggling to keep up with the horde of clients waiting to withdraw their money.
Subsequently the sudden rush for withdrawal was a tremendous pressure for the firm. From January to September last year, the bank lost Tk 1,123 crore. In 2022, it lost Tk 357 crore. The banks bad loans stood at Tk 12,368 crore which was 28.92 percent of its total disbursed loans, shows BB data.
Amid reports of financial irregularities, BB in December last year reconstituted National Banks board of directors.
However, industry insiders said the merger plans were not voluntary and that sound banks were being forced to agree to take over weak banks. The central bank has decided to merge weak banks with strong lenders as a part of its efforts to bring about reforms in the banking sector, as per conditions tagged with $4.7 billion-worth loans from International Monetary Fund (IMF), they said.
Earlier in March, BB Governor Abdur Rouf Talukder formally informed the bank owners that they could decide to merge voluntarily within December. Afterwards the central bank would decide which weak banks to merge with sound ones under a Prompt Corrective Action (PCA) framework. The PCA framework, which would help determine the health of banks, is scheduled to be implemented from March 2025, based on performance and financial indicators as of December 2024.
Muhammad A. (Rumi) Ali an iconic banker with extensive and wide-ranging experiences as CEO, board member and chairman of several institutions said every merger is individual. "In our merger and acquisitions we must follow a basic model and then customize it for every individual case," he said.
Mohammad Farooq, former president, The Institute of Chartered Accountants of Bangladesh (ICAB) said, "Its true in mergers and acquisitions many people will lose their jobs. Shareholders may get lesser and depositors may be in trouble and may feel insecure about their deposits."
So it is very much sensitive in the process of revaluation in merger or acquisition.
While talking with the Daily Observer, Muzaffar Ahmed, Chairman, Credit Rating Information and Services Limited (CRISL) said, "I am still in doubt what may happen through this merger and acquisitions."
He said in real concept merger and acquisitions usually take place at the willingness of the banks and institutions but here in Bangladesh it is like forced ones. The BB devised prompt corrective actions and by setting a few criteria it has given banks an interim period for self choice and after its expire it would go for forced merge.
