Stable banks concerned over the merger initiative

The process of merging weak banks with the stable banks has started through the signing of the MoU (memorandum of understanding) between the Exim Bank and the Padma Bank. However, the directors and officials of stable banks are concerned over this.

They fear that the merger of the Exim Bank and the Padma Bank may encourage the tendency to burden the good banks with weak banks. Bangladesh Bank is planning to merge some seven to 10 banks in crisis. This decision has mounted pressure on stable banks to be merged.

Speaking to Prothom Alo regarding this Association of Bankers Bangladesh (ABB) chairman and BRAC Bank managing director (MD) Selim RF Hossain said he expected that nothing abnormal would be done without any consultation.

Several top bank officials mentioned the National Bank, which is under immense crisis, in particular while speaking to Prothom Alo. On condition of anonymity they openly said they were highly concerned with this bank. The amount of defaulted loans of this bank is around Tk 125 on paper, which is 29 per cent of total disbursed loan. However, the actual amount is double that mentioned on papers. The officials of the bank itself disclosed this to Prothom Alo unofficially.

Persons relevant to the banking sector say the decision to reduce the number of operating banks through merging is a good one. Although this decision is politically driven, it should be implemented considering the financial condition of the banks. Besides, instead of mounting pressure, the stable banks should be allowed to merge with weak banks decisively.

A complete policy must be developed to run this merging programme on a professional basis. Otherwise, this initiative might not bring any positive outcome.

Former Bangladesh Bank (BB) governor Salehuddin Ahmed told Prothom Alo, “Banks which are weak should be listed and the bad assets should be separated first. Then the banks should be urged to merge voluntarily. Putting good banks under pressure to merge with weak banks might not yield the expected results.”

Salehuddin Ahmed further said banking sector reforms cannot not be accomplished only through merging the banks. It’s time to reduce nepotism and recruit independent directors to operate the banks. At the same time, all the anonymous and hidden defaulted loans should be identified. The central bank needs to start implementing equal laws everywhere. The time of charging a specific person or group while sparing others is over. The time has come to ensure highest security of the money of the depositors, he added.

Although it has been said from different levels of the government the banking sector is doing good, reality tells a different story. Although the amount of defaulted loan is Tk 1,450 billion, the amount of vulnerable assets is nearly Tk 3,500 billion. Besides, the size of anonymous loans equals the amount of defaulted loans, the BB officials estimated.

At least five banks, which are going through an immense liquidity crisis due to irregularities, are being operated with the money loaned from the central bank. Apart from the state-owned banks and banks with foreign ownerships, the amount of default loans is more than 10 per cent in case of many of the private banks of the country, including the AB Bank, Bangladesh Commerce Bank, ICB Islami Bank, National Bank, One Bank and Padma Bank. Of them, the amount of default loans of the ICB Islami Bank is over 85 per cent. At least, 10 more banks have hidden information regarding default loans.

After taking charge as the governor of Bangladesh Bank, Abdur Rauf Talukder started separate monitoring over 10 weak banks, including the Padma Bank. However, it did not come to any work, according to bank officials.

The central bank took the initiative to tackle the problems of the central bank very recently. The proposal to merge stable banks with weak banks came up in the meeting of the top executives of the central banks. The central bank governor advised to start discussion in this regard among the MDs of the stable and weak banks.

Later, during a meeting between the central bank and Bangladesh Accreditation Board (BAB) on 4 March, the BB governor said some seven to 10 weak banks are likely to merge with good banks by this year. The central banks also made it clear at the meeting that they would mount pressure on good banks to merge if they don’t merge with the weak banks voluntarily by this year.

The Bangladesh Bank approved a roadmap to solve different problems within the banking sector. It also includes issues related to bank mergers. Amid this, the Exim Bank and Padma Bank signed a MoU to merge with each other.

The Padma Bank is one of those nine banks which got government approval under political consideration. It got the licence under the name of Farmers Bank. However, in the face of allegations of endless irregularities, changes were brought in the governing body of the bank.

This bank mainly runs on money deposited by several government banks and capital of various financial institutions. Some 60 per cent of the total loans disbursed by this bank are defaulted now. At the same time, the bank is not being able to return the money of major depositors.

Speaking to Prothom Alo, BB spokesperson Mezbaul Haque said the banks have been suggested to merge with weak banks voluntarily. Otherwise, the central bank will take actions in this regard.

The decision to merge the Exim Bank and the Padma Bank came suddenly. According to several sources, there were proposals from different levels to the Exim bank to merge with the National Bank. However, the Exim Bank didn’t want to take the responsibility of a large bank such as the National Bank. Later, it took the responsibility of the Padma Bank.

It has been learnt from the sources in the banking sector that the merger initiative started with the Exim Bank as its chairman Nazrul Islam Mazumder is also the chairman of the Bangladesh Accreditation Board (BAB).

Bangladesh Bank officials say the banks with low default loans and strong capital basis can take the responsibility of one of the weak banks. This list of good banks includes the BRAC Bank, Eastern Bank, The City Bank, Prime Bank, Dutch-Bangla Bank, Mutual Trust Bank, Jamuna Bank, Pubali Bank and Dhaka Bank.

It has been discerned from several sources that the officials and directors of these banks are in panic over the merger initiative. They are estimating how to take the least risk.

Asked about this, ABB chairman and BRAC Bank MD Selim RF Hossain told Prothom Alo, “It usually takes two or three years to complete the process of merging to banks. A competent and experienced workforce is needed for this process. My experience says this is a very complex process. Not all the banks have the capability to merge with other banks. It is a timely initiative to reform the banking sector. We also are thinking about this. But we expect the decision will be made on the basis of discussion and nothing untoward will be done in the name of reforms in the banking sector.”

Seeking anonymity, several bank directors said it would be tough for other banks to avoid the merger when an influential bank such as the Exim Bank had to accept the proposal to merge. This is creating a panic among the bank directors.

Prime Bank chairman Tanjil Chowdhury told Prothom Alo, “The foreign financiers are repeatedly asking about this. We have told them that no initiative would be taken that could weaken our bank. The banks run on the money of the depositors. So there is no scope to weaken the financial basis of the bank."

He further said, “The initiative to merge banks is a good one. There should be a relaxation of some policies to encourage other banks and to ensure that no one faces loss as a result of this initiative. However, the key question in this case will be how the financial assessment of weak banks will be conducted. The entire process would be fairer if an international audit firm could be added to this.”

*This report appeared on the print and online versions of Prothom Alo and has been rewritten in English by Ashish Basu