Bangladesh Bank Governor Abdur Rouf Talukder has recommended initiatives to merge weak banks with the better performing ones. The central bank wants the weak banks to begin merger talks immediately.
The governor made this suggestion at a meeting held at the central bank on Wednesday, with the managing directors (MD) of the country’s public, private and foreign banks, said several sources present at the meeting.
Before this, the bankers’ meeting was held last August. All the deputy governors and senior executives of the central bank took part in Wednesday’s meeting.
Governor Abdur Rouf Talukder mentioned in the meeting that 40 out of 61 banks in the country are in good condition, said the sources. Of the remaining, some 8-10 banks could merge with others. For this, he advised MDs of better performing and weak banks to initiate discussions among themselves.
After the meeting, Syed Mahbubur Rahman, MD of Mutual Trust Bank, told the newspersons that there is no alternative to start reforming the banking sector.
As per the existing policy, business scope of weaker banks will be restricted from March in 2025 based on the current year’s financial data. The merger or acquisition process will begin then. The weaker banks will be identified based on their capital adequacy, high non-performing loans, liquidity and good governance.
Meanwhile, after the suggestion of the governor, the question has arisen among the bankers as to why the good banks will take over the responsibilities of the weak banks. This might lead to the decline in financial indicators of the good banks, they fear.
They are also worried that the real financial picture of weak banks is not clear either as they have many bad loans which are not in the account of actual defaulters.
Wishing not to be named, several MDs present at the meeting told Prothom Alo that the good banks will not take any initiative to merge at the moment as this might lead them into a crisis.
None of them will come forward in this regard until the Bangladesh Bank issues specific instructions or policies in this regard.
After assuming the office as governor on 12 July in 2022, Abdur Rouf Talukder said in a press conference on 3 August that year that 10 weak banks have been identified for establishing good governance in the banking sector. The progress of each bank will be monitored by a senior official of the central bank, he added.
List of weak banks from next year
After highlighting the main issues of monetary policy in the bankers’ meeting, there was a discussion on early and quick corrective measures in the banks (PCA Framework). The MDs attending the meeting were informed that the banks, which have more than 5 per cent default loans and the capital reserve ratio (CRR) against risk-based assets is less than 12.5 per cent, will be divided into four groups.
The central bank could limit the operating expenditure of such banks and other facilities like their distribution of dividends, opening new branches, and closing deposits and loan disbursement. This policy will be implemented from March 2025 based on their financial data of 2024.
The Association of Bankers Bangladesh (ABB) chairman Selim RF Hussain told newspersons after the meeting that the central bank has asked to review the financial indicators of the banks every quarter. The banks that are doing badly be urged to improve. This was essential for the banking sector in this situation.
He hoped this would restore stability in the sector.
Mezbaul Haque, spokesperson of the Bangladesh Bank, told the media after the meeting, “The practice of merging and acquisition of banks will start in the coming days. MDs of all the banks have been requested to keep in mind the consequences if the conditions are not fulfilled. Awami League’s election manifesto also talked about restoring order in the financial sector. The Bangladesh Bank is working to that end. There will be new announcements about reducing defaulted loans and restoring good governance in the banking sector. If a bank cannot improve its situation, it will be merged or acquired.”
New facilities to improve dollar situation
The sources present at the meeting also informed Prothom Alo that new initiatives to reduce the dollar crisis were announced. The government is set to make a law stipulating that no Bangladeshis will be questioned if they bring any amount of dollars from abroad.
The central bank, at the same time, will introduce the dollar-money swap system. Through this, the banks will be able to withdraw money by depositing the surplus dollars in the central bank. If necessary, the dollar can be taken back by depositing the money again.
Besides, if a customer deposits foreign currency in the bank, the interest rate would be 9 per cent than the existing 7 per cent. The bank MDs were informed of this in the meeting.
The central bank also thanked the bank MDs for reducing money laundering under the guise of import and export.
Following the meeting, ABB Vice Chairman Mashrur Arefin told newspersons, “We are optimistic about the return of dollars that are in different banks abroad to our domestic banks. Those who have laundered money illegally will not bring back those dollars without legal assurance.”