Merger MoU signed: Padma Bank depositors can withdraw money from Exim Bank
Exim Bank Chairman Nazrul Islam Mazumder disclosed the information during a MoU signing ceremony
Depositors of the ailing Padma Bank will soon be able to withdraw money from the Export Import Bank of Bangladesh as the banks have signed a Memorandum of Understanding for a voluntary merger, a first for the country, officials said today (18 March).
Exim Bank is taking all responsibilities of Padma Bank from now on, Nazrul Islam Mazumder, chairman of Exim Bank and the Association of Bankers, told reporters after signing the merger agreement at the head office of Bangladesh Bank today (18 March).
Bangladesh Bank Governor Abdur Rouf Talukder as well as Padma Bank Chairman Md Afzal Karim were present during the MoU signing.
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"Bangladesh Bank will make an announcement after the merger process is completed. After that, the two banks will operate as one entity and depositors will be able to withdraw money from Exim Bank," said Executive Director and Spokesperson of Bangladesh Bank, Md Mazbaul Haque.
He said, defaulters will not be spared. Two audit forums will be formed. The liability of the directors will also come up through the auditors, he added.
In the country's first voluntary merger move, Padma Bank is set to merge with Exim Bank after failing to get back to health with the government's Tk1,700 crore bailout package.
As a result, the directors of Exim Bank will take all decisions of the two banks for now. No final decision has been taken yet regarding the appointment of managing directors of the two banks. The process is going on in that regard, said Exim Bank Chairman Nazrul Islam Mazumder.
However, no official of Padma Bank will lose their jobs, he added.
Nazrul Islam Mazumder also claimed, Padma Bank will gain its health within a year.
Regarding pressure from the government Nazrul Islam Mazumder said, there was no pressure from the government but it was their advice. We did the merger for the sake of the country's development and the economy's development.
Padma Bank Chairman Md Afzal Karim said, "There are two ways to integrate. We haven't acquisitioned rather merged. A merger between a strong bank and a relatively weak bank. There are about 1,200 employees of Padma Bank. They will not be fired, rather they will be working for Exim Bank."
"Our depositors and shareholders will not incur any loss. Operations will continue as before," he added.
Padma Bank has defaulted loans of Tk3,750 crores and the liability of government banks with Padma Bank is about Tk3,000 crores. In this regard, he said, now that Padma has been merged, all liabilities of Padma Bank have now been taken by Exim Bank. Moreover, there are assets of two banks now.
About Sharia-based banks, he said, Exim Bank is Shariah-based. Although Padma Bank was a general bank, it will not become a Shariah-based bank.
The board of Exim Bank on 14 March decided to create a single entity, acquiring Padma Bank, said Md Nazrul Islam Mazumder, chairman of Exim Bank.
He said the bank will run under the name of Exim Bank after the merger, rendering the Padma Bank name obsolete.
Exim Bank's merger decision came a week after Bangladesh Bank Governor Abdur Rouf Talukder asked bank owners to prepare for merger either voluntarily or forced.
Bank owners were assured that they will be incentivised if they go for mergers.
When Farmers Bank – which later was renamed as Padma Bank – was nearing collapse due to massive lending anomalies since its inception in 2013, four state-owned banks – Sonali, Janata, Agrani, and Rupali – and the Investment Corporation of Bangladesh came up with a Tk715 crore bailout in 2018.
The state-owned banks also invested an additional around Tk1,000 crore in the bank in other forms, such as subordinate bonds and fixed deposits.
However, the total investment of public money could not stop the capital erosion of the bank as it could not recover money from defaulters.
At the end of 2023, Padma Bank's outstanding loans amounted to Tk5,740 crore, of which Tk3,550 crore was defaulted, indicating a limited capacity for the bank to reimburse depositors. The default loan rate was nearly 47% as of June 2023.
Also, the bank recorded a capital shortfall of Tk607 crore at the end of September 2023. The total deposits of the bank stood at above Tk6,500 crore at the end of June 2023. Primary data shows that liabilities of the bank was Tk5,000 crore higher from assets.
With the provided bailout package, the government holds 65% stake in the bank. At present, state bank representatives are on the board of Padma Bank as investors. Nearly 950 employees are working at the bank.
