Padma Bank depositors can withdraw from Exim Bank

Although there will be no Padma Bank from Tuesday (19 March), its depositors will have access to their funds through Exim Bank.

There will be no problem for Padma Bank depositors and their deposits are safe, Md Nazrul Islam Mazumder, chairman of Exim Bank, said after an agreement on merger with Padma Bank on Monday (18 March).

"Due to the merger with Padma Bank, the new operations will be carried out under the name of Exim Bank," he added.

Exim Bank will now assume all of Padma Bank's liabilities, and they will repay all debts owed, he added. Besides, Exim Bank has taken over the responsibility of all the manpower, investors, and shareholders of Padma Bank.

Mazumder, also the chairman of the Bangladesh Association of Banks (BAB), clarified that the government did not force the merger. "However, there was government advice. We chose to merge for the country's benefit and its economy."

He explained that Exim Bank follows Shariah principles in its operations. Since Padma Bank is merging with Exim Bank, it will also adhere to Shariah principles.

EXIM Bank's chairman clarified that they are not acquiring Padma Bank but are merging it.  

The memorandum of agreement was signed in the presence of Bangladesh Bank Governor Abdur Rouf Talukder. The managing directors of the two banks signed the agreement on behalf of their organisations. 

Padma's liabilities

Padma Bank has Tk4,054 crore outstanding loans as of December 2023. Its classified loans amount to Tk1,881 crore. Besides, state-run banks have Tk3,000 crore invested in Padma Bank.

Reflecting on this, Mazumder stated that now that Padma has been merged, all liabilities of Padma Bank have been assumed by Exim Bank.

By the end of December 2023, Padma Bank had deposits totaling Tk6,186 crore. 

Among these, government institutions held Tk1,964 crore, including Tk1,000 crore from state-owned banks like Sonali, Agrani, Janata, Rupali, and ICB, along with Tk760 crore from the Climate Change Trust Fund. Other significant depositors include Life Insurance Corporation, General Insurance Corporation, Power Development Board, Titas Gas, BTRC, Mongla Port Authority, BIFFL, Islamic Foundation, Narayanganj Dockyard, and some others, with deposits over Tk1,000 crore.

Over the past years, the bank has returned Tk874 crore to government institutions, with Tk224 crore in 2022 and Tk80 crore in 2023. 

However, many institutions still await the return of their deposits, with some even lacking interest payments. For example, Tk761 crore of the Climate Change Trust Fund remains stuck with Padma Bank.

Fate of state banks' investments 

Exim Bank will also manage government banks' capital investments in Padma Bank, stated Mazumder.

"They [state banks] can choose to keep their investments with Exim Bank, or if they prefer, they're free to withdraw them. With deposits totaling Tk47,000 crore, Exim Bank has no problem managing these investments," he reassured.

Afzal Karim, managing director of Sonali Bank, expressed hope of recovering the full amount of their investment. The central bank is working on the process, he said.

"Today only the agreement has been signed. This process will take time to complete," Karim added.

Padma Bank employees

Regarding Padma Bank employees, he said no employee will lose their job for three years, but that will depend on performances.

"All of Padma Bank's employees, around 1,200 in number (though Padma claims 795), will keep their jobs and work for Exim Bank. Depositors and shareholders won't lose anything, everything will stay the same," said Mazumder.

However, the directors of Padma Bank cannot be on the board of Exim Bank, he said, adding that the managing director (MD) of Padma Bank has to step down. 

Usually, an acquired bank's MD steps down after acquisition.  

What BB says

Md Mezbaul Haque, executive director and spokesperson of the Bangladesh Bank, said the merger will not allow defaulters to escape scrutiny.

"Two audit firms will investigate. Directors' liabilities and the bank's valuation will be determined through the audit process. We'll proceed according to the law," he added.

The spokesperson explained that the two banks have reached a merger agreement now. They will submit their applications next. Upon approval of their proposal by the Bangladesh Bank, the merger will proceed. Once granted permission to establish the new bank, Padma Bank will be dissolved. Until then, both banks will continue to operate normally.

"Once the tasks are completed within the bank, the court and the securities regulator will handle their part. Once these processes finish, the remaining work will be completed swiftly," he added.

Sources at the Bangladesh Bank said the central bank will soon create a policy to merge financially strong banks with weaker ones. This merger process will be completed following that policy.

They mentioned that even after the process begins, it will take at least 12-18 months or longer to complete.

The two banks

EXIM Bank has 168 branches and Padma has 60 branches and 14 sub-branches. After the merger, EXIM will be a bank of around 250 branches, making it the largest after Pubali and Islami Bank Bangladesh in terms of branch network.

Exim Bank was started in 1999 and is currently a Shariah-based bank. The bank was listed on the stock market in 2004.

Meanwhile, Padma Bank, previously named Farmers Bank, was approved in 2013. Padma has faced major financial scandals within a few years of its inception. Former home minister Mohiuddin Khan Alamgir was the chairman of the bank at that time.

Then came major changes in the bank's board in 2017. Farmers Bank was renamed Padma Bank, and several government banks and organisations joined the ownership of this bank.

However, public investment could not stop the bank's capital erosion, as it could not recover money from defaulters.