Economy Desk: For the purpose of reforming the banking sector, Bangladesh Bank has suggested merging all weak or bad banks with strong or good banks.
Meanwhile, Bangladesh Bank has identified 10 weak banks based on capital adequacy, level of classified loans, loan-deposit ratio, and amount of provisioning.
Out of the existing 61 commercial banks in the country, 40 are doing well, but the rest are not in a favorable condition. Weak institutions in a sector are detrimental to strong institutions as well. This has long-term effects on the overall economy.
Therefore, as part of the roadmap to ensure corporate governance in the banking sector, the central bank has undertaken a plan to forcefully merge at least 10 banks by January next year.
Nine of the banks are: Bangladesh National Bank, Bangladesh Agricultural Bank, Basic Bank, Rajshahi Agricultural Development Bank, ICB Islamic Bank, Bangladesh Commerce Bank, Padma Bank, National Bank of Pakistan, and AB Bank. It is also known that the name of Janata Bank is on the list. The central bank identifies weak banks by taking into account four aspects: the level of classified loans, capital adequacy, loan-deposit ratio, and provisioning or security reserve of these banks.
In a meeting held at the head office of Bangladesh Bank on Monday (March 4) this year, the governor of the bank, Abdur Rauf Talukdar, informed the leaders of the Bangladesh Association of Banks (BAB) about this plan. Directors of seven commercial banks, including state-owned and private banks, were present in the meeting.
In the meeting, Bangladesh Bank Governor Abdur Rauf Talukder instructed the weak bank owners to prepare and decide which bank they want to merge with.
In this regard, the Executive Director and Spokesperson of the Central Bank, Majbaul Haque, said, “If any bank cannot fully implement the PCA, then options like merger will come to the hands of the Central Bank.”
Earlier, on February 5, 2023, Bangladesh Bank issued a direction in this regard for the implementation of PCA. It is informed in the direction that Bangladesh Bank has powers like merging.
The governor advised the bank managers in the meeting that the number of banks can be reduced by forming large private commercial banks by merging strong or good banks with weak banks.
The source who participated in the meeting also said that the governor of the central bank mentioned as an example that a new big bank can be formed by merging two strong private banks, City and Eastern Bank.
After the meeting, Bangladesh Bank Executive Director and Spokesperson Mejbaul Haque said, ‘For the welfare of the banking sector, we have decided to merge the banks. I will formulate a policy after reviewing the overall issue.
Meanwhile, Manjurur Rahman, chairman of Pubali Bank, said that in the meeting, the central bank governor assured us that the merger would be conducted according to international standards. A weak bank can never keep up with a strong bank. For example, our bank is well positioned among private banks. We have no chance of forcing a weak bank.
The latest amendment to the Bank Companies Act 2023 empowers Bangladesh Bank to pressurize any bank to initiate mergers if its board of directors and management engage in activities that go against the interests of depositors.
In the country’s banking sector, the amount of defaulted loans has increased by Tk 25 thousand crores in 2023. At the end of December last year, the total amount of defaulted loans in the banking sector stood at one lakh 45 thousand crores. This default is 9 percent of the total debt of 16 lakh 17 thousand crores.
Till June last year, only 11 banks had 93 percent of defaulted loans of Tk 24,419 crore. According to the data from Bangladesh Bank, the capital deficit of 14 banks reached 37,506 crores at the end of September last year.
Meanwhile, several other banks, including Padma Bank and NRB Global Bank, have applied to the government to merge with other Sabal banks.
If a weak bank merges with a strong bank, the government will compensate the strong bank after assessing the losses of the weak bank through an audit firm. Sabal Bank has to compensate the depositors against these bad assets.
‘In such a situation, there will be no weak bank ownership. Losses incurred on taking assets will be deducted from their paid-up capital. If anything remains, the directors of the weaker bank will hold equivalent shares,’ he explains.
Ahsan H. Mansoor, executive director of the Policy Research Institute, said that the international practice is that the country’s central bank merges weak banks. If a strong bank wants to merge with another strong bank, that too can happen.
Association of Bankers, Bangladesh (ABB) Chairman and Managing Director of BRAC Bank Salim RF Hossain said, “I think the merger process can start in 2026. No such regulation has been made yet. But it looks like it will.
But economists see job losses as a major problem in consolidating weak banks. Economist Zahid Hossain said, “Many people will lose their jobs if amalgamated, and then it will become a humanitarian issue.”
He also said that mergers are better because if a bank is completely closed, it does not set a good example for the country.
