Bangladesh Bank will force mergers if weak banks themselves fail to decide what to do, under the new Bank Companies Act 2023.
The central bank asserted its firm position regarding the merger policy guidelines, but stakeholders -- including owners, employees, shareholders and customers -- remain perplexed as to what will actually happen in future.
Fear arose after two separate meetings with managing directors (MD), chief executive officers (CEOs) and then owners of commercial banks on January 31 and March 4, where Bangladesh Bank Governor Abdur Rouf Talukder shared the plan.
Talking to different stakeholders regarding bank mergers, employees feared losing their jobs, while other shareholders were concerned about share price volatility, depositors feared losing their deposits, and directors feared losing their positions due to newly-enforced and reduced number of directorships.
BB's plan
According to meeting sources, the governor instructed banks to take preparation for the merger and choose which bank they prefer to merge with.
Governor Talukder said earlier that 40 out of 61 banks in the country were in good condition, while the remaining 8-10 banks may be merged.
He advised MDs and CEOs of both good and weak banks to start discussions among themselves with a view to merger.
Executive Director and Spokesperson of the Bangladesh Bank Mezbaul Haque said: “We decided to merge banks for the wellbeing of the banking sector. After reviewing the overall issue, we will develop a concrete merger policy.”
He also said that they will be able to identify weak banks by the end of this month.
“After that, a decision will be taken as to which banks need to be merged. Then the process will start in the light of the policies made considering the overall issues. We have before us examples from different countries of the world. In most cases, banks were merged through the owners' own initiative. In some cases, the regulatory body decided. We also want the owners to decide. We will decide if the need arises,” the spokesperson added.
Bank Company Act 2023
Concerns surrounding forced merger of banks, which began in 2023, have been dispelled by the central bank, who reiterated that any such move will only make the banks stronger.
According to the Bank Company Act 2023, Bangladesh Bank will be able to initiate forced mergers of any bank if the board of directors and management are found to be involved in activities that go against the depositors' interest.
The amended Bank Company Act states that the central bank will be able to take multiple measures to consolidate or reorganize any banking company if the regulator finds that the banking company failed to implement the recovery action plan.
Stakeholders apprehensive
Manzurur Rahman, Chairman of Pubali Bank, said the central bank governor at the recent meeting assured them that the mergers will be guided according to international practices.
“A weak bank can never be merged with a strong one. For instance, our bank is in a good position among private banks. There is no scope to impose a weak bank on us.”
However, according to sources, the governor assured them that directors will not be affected by mergers as their financial losses will be compensated.
Bangladesh Association of Banks (BAB) chairman Nazrul Islam Mazumder earlier said: “The governor answered our queries well. We understand that no one will be harmed by this. Weak banks will become stronger and good banks will become even better.”
“Considering various examples of banks merging in different countries, we will accept the move in national interest,” he added.
Although the Bangladesh Bank governor has given hope to the directors, the biggest worry came from bank employees.
According to bankers and economists, bank mergers will naturally result in some branch closures, since maybe now those banks will have several branches in the same area, which will no longer be needed after the merger.
This will reduce the additional cost. At the same time, they also think that any rumour before the bank merger may affect a listed bank's share price.
Why the fuss
Currently 61 commercial banks are operating in Bangladesh. On March 4, the governor said that most banks were performing well.
Bangladesh Bank data analysis revealed that the country's banking sector experienced a steep rise in default loans by Tk25,000 crore in 2023.
At the end of December last year, the total default loan in the banking sector stood at Tk145,000 crore, accounting for 9% of the total loans that stood at Tk1,617,000 crore.
Only 11 banks accounted for 93% of the staggering Tk24,419 crore in loans defaulted as of June last year.
Bangladesh Bank data shows that the capital shortfall for 14 banks reached Tk37,506 crore at the end of September last year.
