BASIC does not want to merge with City

BASIC Bank is unwilling to merge with the private sector City Bank. They want to merge with any government bank. The bank’s board of directors has issued an official letter to the government to this end.

Earlier on 9 April, the bank officers and employees had submitted a memorandum to the finance minister stating that they did not want to merge with a private bank. BASIC Bank is an entirely state-owned commercial bank. They said they were in a panic over the news that this government bank would be merged with a private bank.

The BASIC Bank depositors were also alarmed at the news of the merger with a private bank. Some of them have even begun withdrawing their deposits from BASIC Bank. A large number of government organisations are withdrawing their deposits from the bank.

BASIC Bank sources say that in the five working days before and after Eid-ul Fitr, deposits of around Tk 20 billion (Tk 2000 crore) were withdrawn from the bank. A few other organisations have also submitted letters to the bank about withdrawing their deposits. This has sent the bank reeling into an acute liquidity crisis. As a result, the bank is unable to maintain the obligatory cash reserve ratio (CRR) and statutory liquidity ratio (SLR).

BASIC Bank sources say that there had been around Tk 140 billion (Tk 14,000 crore) deposited in the bank and this has dropped to Tk 120 billion (Tk 12,000 crore) at present. Till the end of December last year, loans disbursed by the bank totaled Tk 128.68 billion (Tk 12,868 crore). If this, around Tk 82.04 billion (Tk 8,204 crore), or 64 per cent, is in default.

BASIC Bank’s managing director (currently in charge) AM Mofazzal told Prothom Alo, “Since 2015, we have been a state-owned bank like Sonali Bank or Janata Bank. That is why various organisations and companies of the government deposit their money with us. Upon hearing about a merger with a private bank, they are withdrawing their money.” He said, that is why the board of directors decided to give the government a letter, asking for the bank to merge with a government bank.

The BASIC Bank board of directors on Wednesday took the decision to write the letter to the government. The letter was sent accordingly. Earlier, speaking to the media, Bangladesh Bank spokesperson Mezbaul Haque said that BASIC Bank was not a government bank.

BASIC Bank officials say that government organisations had deposited their money in BASIC Bank in consideration that it was state-owned. A large chunk of the bank’s deposits came from government organisations and companies. When it was said that this was not a government bank and would be merged with a private bank, the government organisations immediately began withdrawing their funds. They withdrew large sums of money before and after Eid-ul Fitr.

Under these circumstances, BASIC Bank’s board of directors sent two letters to the finance ministry’s financial institution division. One of the letters stated that BASIC Bank is entirely a government bank and so if it is to be merged, it must be merged with a government bank.

The other letter said, panic has broken out among the depositors at the news of the merger with the private sector City Bank. The bank has sought the government’s assistance in this regard.

Copies of the letters have been sent to the governor of Bangladesh Bank as well. An official of the bank, on condition of anonymity, told Prothom Alo, government institutions are withdrawing their deposits. That is why this letter had been issued asking for the decision to be changed.

Bangladesh Bank has basically spoken about the merging of five banks with another five banks. According to the decision, the state-owned BDBL will be merged with Sonali Bank, and Rajshahi Krishi Unnayan Bank with Krishi Bank. The process is underway to merge BASIC Bank with City Bank, Padma Bank with EXIM Bank and National Bank with United Commercial Bank (UCB). Among these, EXIM Bank selected Padma Bank from beforehand in order to avoid a merger with other banks.

Bangladesh Bank on 8 April summoned the City Bank chairman Aziz Al Kaiser and managing director (MD) Masrur Arefin and informed that the crisis-ridden BASIC Bank would have to be merged with City Bank. Bangladesh Bank governor Abdur Rauf Talukdar and advisor Abu Farah Md Naser were present at the time. Neither side has officially admitted to the matter being forcefully imposed.

BASIC had been a good bank

The state-owned BASIC Bank had once been a well-reputed bank. This bank was launched in 1989. The industries secretary would be the chairman of the bank. This practice was broken in 2009 and the chairman was appointed from the private sector. The Awami League government appointed regional level Jatiya Party leader Sheikh Abdul Hye alias Bachchu as the chairman of the bank. This appointment came into effect on 4 October 2009. He was appointed for five years in two terms. In these five years be brought the bank down to its worst condition and then on 5 July 2014 he resigned.

The bank’s loans began to pile up from after Abdul Hye was made chairman. Sidestepping banking rules and regulations, he began sanctioning large loans on his own accord. The default loans of this bank had always been kept under 5 per cent. In five years the default loans shot up to 68 per cent.

Abdul Hye did not restrict himself to merely granting loans. He randomly recruited people to the bank without any exam. The bank had a workforce of 776. In 2014 this had spiraled to over 2000. Even now the bank has over 2000 employees. Branches have been opened here and there in an unplanned manner to accommodate this burgeoning workforce.

Over the past 10 years BASIC Bank has seen losses of Tk 42.3 billion (Tk 4,230 crore). There were also irregularities totaling Tk 45 billion (Tk 4,500 crore). So in these give years, the losses have been equal to the corruption in BASIC Bank.

While Sheikh Abdul Hye is held responsible for the predicament of BASIC Bank, the Anti-Corruption Commission (ACC) only filed a case against him after over a decade. It has not been possible to arrest him and there is no visible effort to that end.

Speaking to Prothom Alo about the matter, former chief economist of Bangladesh Bank, Mustafa K Mujeri, said it is now evident that City Bank and BASIC Bank are merging under pressure. All over the world, bank mergers take place based on the willingness of both parties, so they can be consolidated. In Bangladesh an opposite process is being followed. As a result of this unrealistic and immature decision, the weak BASIC Bank will weaken further. The depositors are withdrawing their money.

Mustafa K Mujeri added, banks must be merged within the regulations. If not, BASIC’s predicament may spread like a contagion to the other banks.