Sonali-BDBL, Krishi-RAKUB in merger process now
BASIC is likely to be amalgamated with Agrani Bank
Following the recent merger initiative between two private banks – Exim and Padma – four state-owned lenders are set to undergo restructuring. The Bangladesh Development Bank Ltd (BDBL) will be amalgamated with Sonali Bank, while Rajshahi Krishi Unnayan Bank with Bangladesh Krishi Bank.
Bangladesh Bank Governor Abdur Rouf Talukder convened a meeting this week with the managing directors of these state banks to discuss the impending changes.
According to meeting sources, the meeting discussed making a formal announcement on mergers in the next week. During the meeting, banks were asked to convene meetings of their boards of directors to formally make decisions in this regard before the official announcement.
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Bank insiders say the state-owned BASIC Bank is also in merger talks, likely with Agrani, another large state-owned bank.
In addition to the troubled Padma Bank, there are eight other private sector banks in merger talks. Thus, the number of banks operating in the country will be reduced from the current 61 to 50 or below.
On 18 March, Padma Bank signed a Memorandum of Understanding (MoU) with EXIM Bank for a merger. According to officials, after the merger the bank will operate under the name of EXIM Bank.
However, the merger of these weak banks with stronger ones has caused panic among stakeholders.
During discussions on these issues, the World Bank suggested at a press conference on Tuesday that mergers should be conducted in accordance with all standard rules. The global lender advised against forced mergers.
According to the Bangladesh Bank, troubled banks will be compulsorily merged with good banks starting in March next year. A Prompt Corrective Action (PCA) Framework based on four indicators has been announced to identify weak banks before mergers. The central bank has pledged support for any banks that decide to merge themselves by December this year.
This is part of the Bangladesh Bank's effort to improve the image of the country's entire banking sector by reducing its numbers through mergers.
Meanwhile, the International Monetary Fund (IMF) has stressed the need to reduce high non-performing loans in the banking sector, improve the capital situation, and enhance management efficiency. Additionally, the central bank considers mergers as a viable option to address the current lack of confidence and improve the liquidity position.
A senior official at the Bangladesh Bank said a formal announcement regarding the merger of the four state banks may come next week.
"The entire process is being conducted confidentially. No one apart from the central bank governor and policy advisor is involved in these discussions at the departmental level," he said. "For this reason, it is not possible to say now which bank will be merged with whom."
Sources say that to ensure the protection of all depositors, the liabilities and assets of weak banks will be combined with those of stronger banks through mergers.
However, the central bank will provide various policy support to the stronger banks to prevent them from coming under pressure.
In this case, cash deposit reserve (CRR) and statutory liquidity reserve (SLR) requirements will be relaxed by the central bank based on the poor financial condition of the bank.
Additionally, in general, the rate at which the security reserve (provision) must be kept against defaulted loans should be reduced in this situation. Furthermore, a system will be implemented to prevent all customers from exerting pressure to withdraw their deposits immediately after merging with a stronger bank.
Not only are state banks in talks for mergers, but there are also at least half a dozen private sector banks discussing the same. Among these, the most discussed is the National Bank, which is subject to the most speculation. Due to the size of the bank, there is also discussion regarding whether merging with a stronger bank will weaken it.
Additionally, other banks such as AB Bank, Union Bank, Global Islami Bank, Bangladesh Commerce Bank, ICB Islamic Bank, First Security Islami Bank, and National Bank of Pakistan, a foreign lender, are also in merger talks.
