Export Import Bank of Bangladesh PLC (Exim Bank) on Tuesday decided not to merge with crisis-hit Padma Bank PLC.
This information was disclosed via a notice on the Dhaka Stock Exchange (DSE) website.
Sources said that on Monday, Exim Bank’s board of directors sat in a meeting, where they decided not to go ahead and merge with Padma Bank.
Incidentally, Exim-Padma was the first announced merger between two banks after Bangladesh Bank took the initiative to merge weak banks earlier this year.
Exim Bank decided to merge with Padma Bank Limited in a meeting of the bank's board of directors on March 14.
In light of that, on March 18, a memorandum of understanding (MoU) was signed at the head office of Bangladesh Bank to start the merger procedures.
After that, Bangladesh Bank also issued its first-ever bank merger policy, outlining both voluntary or agreed mergers and forced mergers in April.
Since the agreement was signed, Padma Bank practically stopped collecting deposits. It is not giving new loans. Old loan supervision and daily banking activities are going on at branch level, a Padma Bank official told Dhaka Tribune, seeking anonymity.
Despite several attempts, no one at the top level of the bank was available for comments.
Nearly nine months after the announcement and after the fall of the Sheikh Hasina government on August 5, Exim Bank withdrew from that decision due to change in circumstances, with Exim Bank informing it to their investors about the decision through the DSE on Tuesday.
From Farmers to Padma
From Farmers to Padma, from Padma to possible-Exim Bank, there has been no change in the financial health of the bank. However, repeated attempts were made to save the bank during the last government's Hasina regime.
In 2013, the then-Farmers Bank was approved as a fourth-generation bank.
Among the fourth-generation banks, this bank was the first to experience a major financial scam within a few years of its inception.
After that, major changes occurred in the bank's board. Farmers Bank was renamed Padma Bank. In 2017, several government banks and organizations joined the ownership of the bank.
When Padma Bank was first established in 2013 as Farmers Bank, it faced many difficulties. Its chairman, Chowdhury Nafeez Sarafat, took over in 2017.
But widespread irregularities had plagued the bank since the beginning, necessitating government intervention in early 2018.
The Investment Corporation of Bangladesh (ICB) and the state-owned Sonali, Agrani, Janata, and Rupali banks contributed Tk715 crore in capital to save the bank.
Additionally, state-owned banks used fixed deposits and subordinated bonds to invest close to Tk1,000 crore in Padma Bank.
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 liability of the bank was Tk5,000 crore higher than assets.
BB’s merger policy
On March 4, this year, Bangladesh Bank announced its first bank merger policy. It is said that Bangladesh Bank will offer some policy support as necessary to ensure smooth bank operations and maintain the banking sector's stability.
According to the policy, that support includes exemptions, loss absorption, and financial assistance.
According to the policy, temporary exemptions will be granted to maintain minimum capital adequacy ratios, cash reserve ratio (CRR), statutory liquidity ratio (SLR), liquidity coverage ratio (LCR) and net stable funding ratio (NSFR).
The Bangladesh Bank would appoint one or more audit firms from its panel to conduct financial, legal, and operational due diligence. These firms will submit detailed reports on the status of depositors and shareholders after completing their audits.
It also stated that even a grace period will be provided to allow the acquiring bank to absorb the losses of the weak bank through its income or convert them into goodwill.
The central bank will provide cash support by purchasing the bank's long-term bonds. Besides, the policy allows for capital increases through share issues, perpetual bonds and subordinated bonds, the guideline said.
However, the directors of acquiring banks will not automatically become directors of the newly merged entity. After five years, they may be eligible for board positions based on their shareholding and other qualifications.
The managing director and deputy managing director of weak banks will lose their positions when merged with stronger institutions. However, the new management can retain them on a contractual basis if deemed competent.
The banks will guarantee employment for staff for three years. The merged bank will then make decisions about their future roles and positions.