Bank merger likely to be delayed

Bangladesh Banks (BB) initiative to merge 21 weak and mid-level banks with the other strong banks, might be delayed till March next year, as the central bank will scrutinize the index of the weak banks this year and the merger process will start from March, 2025, according to the central bank sources.

Meanwhile, there is a possibility of merger of only eight to 10 banks out of the 21 as most of the weak and mid-level banks owned by the influential persons would remain out of the process, the sources claimed.

Regarding the issues of bank merger Bangladesh Bank spokesperson Mezbaul Haque, also executive director of the bank, said, "The option of bank merger is in the law. The issues of merger of weak banks are also mentioned in the roadmap prepared by the Bangladesh Bank. A Prompt Corrective Action (PCA) Framework has been formulated.     
The process of merger will be initiated by identifying weak banks according to its criteria."

According to the roadmap of Bangladesh Bank, there is no opportunity to merge any weak and mid-level banks before March 2025. The index of weak banks will be scrutinized this year and the merger process will start from March 2025, he added.

According to the central sources, 40 banks out of 61 banks of the country are now in a good position. Out of the rest 21 banks, 10 to 11 banks are in medium condition and the rest 8 to 10 banks are very much weak. Those weak banks might be merged with the banks which are in very good position.

In the bankers meeting held at Bangladesh Bank recently, BB Governor Abdur Rauf Talukder said that 8 to 10 banks of the country can be merged. For this, he also suggested the MDs of good and weak banks interested to merge themselves to start discussions among themselves.

Besides, the merger policy will be implemented from March 2025 based on the financial report of 2024. According to that policy, banks will be graded based on five indicators. They are the Banks Capital Retention Against Risk Based Assets (CRAR), Tier-1 Capital Ratio, Common Equity Tier-1 (CET1) Ratio, Net NPLs and Corporate Governance.

Bangladesh Bank will mark the bank which continuously falls in these five indicators as unsafe and financially unhealthy. Deterioration in two consecutive categories will be marked as weak bank. Central Bank can take steps to consolidate the bank if it fails to implement the plan to improve the quality of the bank by overcoming the weaknesses.

But it has to start after March 2025. Meanwhile, many people in the financial sector are saying that if banks are to be merged, steps should be taken and work should be started now.

Dr Qazi Kholikuzzaman Ahmad said, Merger is a timely initiative. This will improve the banking sector.

However, how the good banks will be merged with the weak banks will depend on the policy of Bangladesh Bank.

 Banks will be able to start working if the policy is made.

On the other hand, it is alleged that the financial indicators of the banks are arranged. The real picture is even worse. Even though the defaulted loans are declared as one and a half lakh crores, the amount is much higher.

A top level official of the central bank said, the way the central bank is running, it will not be possible to identify the weak banks in the real sense. Especially the banks of the influential persons will remain out of the weak list.

According to sources, if merged it is possible to reduce cost if strong banks that have enough assets take over weak banks one by one. It is also possible to halve the total number of banks.

Meanwhile, there will be a merger or an acquisition. The difference between the two is that in a merger, the ownership of the two banks becomes one. The two boards will become one with sponsor directors from both parties.

And acquisition means taking the whole of banks. A bank does not exist in it. Their assets, liabilities become subservient to other banks.

A top official of the Central Bank said that Padma (formerly Farmers) Bank may merge with the state-owned Sonali Bank, Rajshahi Agricultural Development Bank with Bangladesh Krishi Bank and Basic Bank with Bangladesh Development Bank. Also Bangladesh Commerce Bank and ICB Islami Bank can be merged subject to discussion.