Reforming Bangladesh’s banking sector is not just a recommendation but an urgent necessity. The industry has struggled for years with liquidity shortages, weak resource management, capital inadequacies, and a stubborn stock of underperforming loans.
If these weaknesses remain unaddressed, they threaten not only individual institutions but also the resilience of the entire economy.
Against this backdrop, talk of bank mergers has grown louder. Many of the so-called good banks, however, remain apprehensive about how such moves might be executed and whether the burden will fall unfairly on well-managed institutions too.
The Bank Company (Amendment) Act, 2023 gives Bangladesh Bank clear authority to mandate mergers when leadership is seen to undermine depositors’ interests. Complementing this is the Prompt Corrective Action framework, introduced in December 2023, which sets a structured response to early signs of stress.
Banks that fail to maintain healthy indicators such as the capital to risk-weighted assets ratio, tier 1 capital ratio, common equity tier 1 ratio, net non-performing loan levels, and sound corporate governance are to be placed under corrective measures. Persistently weak performance raises the risk of penalties and, ultimately, enforced consolidation.
In theory, consolidation can strengthen weak banks by leveraging the discipline, systems, and capital stewardship of stronger institutions. In practice, success demands transparency, robust planning, and trust among all parties.
A central concern is opacity around the true health of several weak banks. Many are suspected of underreporting bad loans. Non-performing assets are sometimes hidden behind accounting choices or evergreening, so declared defaults sit below reality.
For any sound bank considering an acquisition, that uncertainty translates into the risk of inheriting undisclosed liabilities. Without credible audits and full data, the foundation for meaningful integration is shaky.
A second concern is fair identification. There are fears that political influence could skew lists, shielding institutions linked to powerful individuals regardless of performance. State-owned banks that have long struggled with inefficiency and losses may also receive undue protection at the expense of taxpayers and the broader economy.
If these questions are not addressed, the entire exercise risks being undermined and public trust will erode. Reform must begin with facts, clean data, and consistent rules that are applied to every institution.
Even when the right candidates are chosen, mergers carry heavy operational and financial challenges. Combining balance sheets can worsen asset quality, increase costs, and strain liquidity if integration moves slowly. People integration is difficult as employees from different cultures and incentive systems must align.
Technology platforms, risk models, and compliance processes require harmonization that is complex and costly. During the transition, customers may worry about service quality or stability and may shift their business unless communication is clear and continuity is protected.
Given this landscape, it is understandable that strong, well-run banks feel little incentive to acquire weaker peers. An ill designed merger could pull down a healthy buyer’s indicators and expose it to unforeseen losses.
Bangladesh Bank should therefore develop a clear menu of incentives to encourage participation, such as capital relief, tax benefits, transitional support for systems integration, and time bound regulatory accommodations tied to measurable milestones.
Equally important is decisive action against repeat offenders and willful defaulters so that responsible players see fairness in the process and feel confident to step forward.
Global experience offers practical lessons. During the integration of Standard Chartered and ANZ Grindlays in this region, the most delicate work was price discovery for both tangible and intangible value, especially brand equity. Equally critical was the careful amalgamation of assets and liabilities and the stitching together of operating systems.
Above all, the human dimension mattered. ANZ Grindlays was large and respected, Standard Chartered was profitable and established. Winning the hearts of employees, retaining customers, and aligning cultures proved as important as the spreadsheets.
Comparable lessons arise elsewhere. Citibank acquired KORAM Bank in South Korea and Guangdong Development Bank in China. Standard Chartered took over Bank Permata in Indonesia and later sold it to Bangkok Bank. In India, Bank of Baroda merged with Dena Bank and Vijaya Bank to build scale.
Outcomes varied. Citigroup later divested its stake in Turkey’s Akbank, and HSBC exited the United States consumer loans business when operations proved unsustainable. These cases show that due diligence, integration discipline, and cultural alignment decide success more than the announcement headline.
From these experiences, several principles stand out.
- Clear central bank guidelines reduce uncertainty for boards and investors.
- Accurate valuation of assets and liabilities prevents value transfer and future disputes.
- Practical share swap modalities help align shareholders.
- A supportive legal environment lowers execution friction in areas like competition approvals, tax treatment, labour transitions, and creditor rights.
- Strong political will ensures that rules are applied consistently, even when decisions are difficult or unpopular.
Bangladesh’s consolidation push should be guided by these principles. Enforced mergers should not be cosmetic fixes. They should catalyze genuine reform, backed by credible audits, cleaned up balance sheets, and boards that meet high governance standards.
Incentives for acquiring banks should be transparent and conditional, unlocking benefits only when integration milestones and customer protection thresholds are met. Customers must be kept at the centre through clear communication, deposit protection, and continuity of essential services.
There is also a role for market discipline. Listing requirements, timely disclosure, and empowered independent directors can complement supervisory tools. Technology can help uncover emerging stress through granular data on sectoral exposures and repayment behavior.
Over time, a stronger resolution toolkit, including purchase and assumption structures and bridge entities, can reduce uncertainty and make future rescues less ad hoc.
Handled with care, transparent timelines and fair incentives can turn consolidation into a truly durable, confidence restoring reform.
Mamun Rashid is a banker and economic analyst.