No new bank mergers to be approved for now: Bangladesh Bank

The Bangladesh Bank has said it will not approve any more proposals for bank mergers for now, except for those already in progress.

Currently, the process or discussion of merging five weak banks with other banks has been initiated, and it is expected to take about three years to complete the legal procedures, as per the central bank.

"The Bangladesh Bank will not approve any further bank mergers in the next three years. New mergers may be considered if necessary after the banks involved in the current five proposals are merged," Executive Director and Spokesperson of the central bank Md Mezbaul Haque told reporters today.

In response to questions about the Bangladesh Bank's decision to halt further mergers, he said, "Bank mergers entail numerous procedures, including auditor appointments, asset and liability setting, determining share prices, allocation, and legal processes. This will require time.

"By implementing these five proposals, we at the Bangladesh Bank will gain experience."

Previously, the Bangladesh Bank had set a deadline until December 2024 for weak banks to merge voluntarily with stronger ones. Otherwise, it was reported that many banks would be compelled to merge starting next year.

Speaking on condition of anonymity, the managing director of a private bank told TBS that the legal process for bank mergers in Bangladesh is lengthy. Additionally, there is a shortage of audit firms to assess the banks.

"This merger process was initiated by the central bank to take credit. Now, due to procedural complications, they are concluding ahead of schedule," he said.

Asked which banks are included in the five proposals, Mezbaul Haque said Padma Bank and Exim Bank are among those. "The names of the others have already come out in the media," he added.

Under five existing proposals, state-run Sonali Bank wants to acquire Bangladesh Development Bank Ltd (BDBL), while the Bangladesh Krishi Bank (BKB) wants to take over Rajshahi Krishi Unnayan Bank (Rakub), according to sources in the banking sector.

Furthermore, City Bank wants to acquire the state-run BASIC Bank, and United Commercial Bank wants to take over National Bank.

Of these, only Exim Bank has finalised an agreement with Padma Bank. The remaining four merger proposals are still under discussion, with no deals reached yet.

Among the banks proposed for merger, default loans account for 29% of National Bank's portfolio, 21% for Rakub, 64% for BASIC Bank, and 43% for BDBL. Additionally, Padma Bank has defaulted loans totalling 46%.

According to the latest data from the Bangladesh Bank, as of December last year, the amount of defaulted loans of banks stood at around Tk1.46 lakh crore, which is 9% of their total loans. Additionally, Tk2 lakh crore is tied up in money loan court cases.

Dr Saleh Uddin Ahmed, former governor of the Bangladesh Bank, said, "Fixing the banking sector requires more than just merging banks. Unaccounted loans and those not reported as defaults also need to be addressed.

"Weak banks should be identified and their non-performing assets separated first. Encouraging voluntary mergers would be preferable after that. Forcing the merger of troubled banks with healthy ones may not yield positive outcomes."

He said, "The central bank should apply consistent regulations across all sectors. Priority should be given to ensuring maximum protection for depositors' funds before initiating bank mergers."

A report titled "Bank Health Index and Heat Map", published in the media last February, identified 38 banks in the country as weak. Among them, 12 are in a critical condition, with nine already in the red zone.