Bank mergers: Guidelines not heeded

The bank merger guidelines the Bangladesh Bank issued on 4 April are not being complied with by the concerned quarters.

As per the guideline, the board of directors of concerned banks will take the decision of bank merger.

There are also allegations that Bangladesh Bank itself is not following the guidelines.

The process of bank mergers started after Bangladesh Bank on 5 February unveiled a roadmap aimed at restoring good governance and reducing default loans in the country's banking sector.

Before unveiling the guidelines for bank merger in the beginning of this month, a decision was taken to merge three banks. Later, another decision is taken to merge two more banks.

Top executives of these banks said Bangladesh Bank has given the decision as to which bank will be merged with which banks.

However, Bangladesh Bank said the decision of bank merger was taken voluntarily. The banks themselves have taken the decision to merge.

Top executives of at least two banks themselves didn't know that their banks were being merged with two other banks.

On 9 April, Bangladesh Bank all of a sudden called chairman and managing director of United Commercial Bank (UCB), a private bank.

As chairman Rukmila Jaman was not available in the country, the bank's executive committee chairman Anisuzzaman Chowdhury and MD Arif Quadri went to the central bank. In a meeting, they were informed that the crisis-hit National Bank will be merged with UCB. The UCB didn't get a chance to differ with the decision.

Similarly, Bangladesh Bank disclosed decisions that public-private five banks will be merged with five other banks.

Mainly the burden of weak banks has been put on the shoulders of a few strong banks.

The way the banks are being merged has caused panic to spread over the banking sector as the central bank is not disclosing in advance which banks will be asked to take the responsibility of weak banks.

However, Bangladesh Bank has said no more new banks will be merged for now. This decision has also given rise to questions as some banks with acute liquidity crisis and lacking in good governance remain out of the process of merger. Under special arrangements, Bangladesh Bank has kept these banks running.

In a report 'Bangladesh Development Update' on 2 April, the World Bank said it is required to be more cautious regarding bank mergers. This process needs to be implemented in accordance with international standards. The merge should be done based on specific guidelines. The global lender also said it is ready to extend support for Bangladesh banking sector reforms.

When asked about the matter, former Bangladesh Bank governor Salehuddin Ahmed said the banking sector will not improve only by bank mergers. Harsh measures have to be taken against loan defaulters, corrupt persons and directors and officials involved in irregularities.

If good banks are forcefully merged with bad banks, good banks may turn bad, he warned.

Bank mergers are a common scenario in the financial world. Bank mergers are considered as a friendly transaction in the western world. Both the banks want to merge their assets and to do better business. Banks are merged considering various aspects including raising capital, reducing cost and bringing innovation in management.

Executive director of the Policy Research Institute (PRI) Ahsan H Mansur said it is not a right decision to merge weak banks before carrying out an audit. Everything has been done in troubled waters. As a result, many have been panicking. Some people have utilized this opportunity.

Questions remain as to how the liability of merged weak banks will be paid, Ahsan Mansur pointed out.

He said the central bank has to take care of the banks which are suffering from liquidity crisis and lack of good governance.

In a meeting with top executives of banks on 31 January, Bangladesh Bank suggested merger of weak banks. Bangladesh Bank Governor Abdur Rouf Talukder recommended initiatives to merge weak banks with the better performing ones. The central bank wants the weak banks to begin merger talks immediately.

Similar advice was given in a meeting with the delegation of Bangladesh Association of Banks (BAB) on 4 March. In the meeting, the governor said seven to 10 weak banks may be merged with good banks in the current year.

Sources said the central bank advised Exim Bank to merge with the crisis-hit National Bank. However, Exim Bank showed interest to merge with Padma Bank, a weak bank. The central bank allowed it. On 14 March, two banks held meetings separately and disclosed their decision to merge. Later, an MoU was signed between two banks in the presence of the governor.

On 3 April it was decided that the Rajshahi Krishi Unnayan Bank (RAKUB) and the Bangladesh Development Bank Limited (BDBL) will be merged with the Bangladesh Krishi Bank (BKB) and Sonali Bank, respectively.
On 8 April, it was decided that the private City Bank will be merged with crisis-ht BASIC Bank. On 9 April, a decision was taken that UCB will be merged with National Bank.

These decisions were made at the meetings at Bangladesh Bank. Top executives of BASIC Bank and National Banks didn't know that their banks were being merged.

Now Bangladesh Bank's decision is that the decision of mergers will be approved in the board of respective banks. But as per the merger guidelines, the board of directors of concerned banks will take decisions in this regard first.

Preferring not to be named, chairman of a bank said, "When I was called by Bangladesh Bank, I was not informed about the subject matter of the meeting. I was merely informed in the meeting about merging with which bank."

The central bank's adviser Abu Farah Md Naser is conveying the message.
When asked about the matter, Bangladesh Bank spokesperson Misbaul Haque said, "Bank restructure can be done in many ways. Merger is one of them. This falls under the voluntary merger. The mandatory merger of banks will take place next year."

Bangladesh Bank former chief economist Mustafa K Mujeri, speaking to Prothom Alo, said bank mergers will not yield any good result unless good governance is established and guilty directors and officials are punished.

*This report, originally published in Prothom Alo print and online editions, has been rewritten in English by Rabiul Islam