Shariah-based Export Import (Exim) Bank has decided to merge with crisis-ridden Padma Bank.
A Memorandum of Understanding (MoU) will be signed between the two private sector banks on this merger on Monday.
This is the first decision to merge two banks after Bangladesh Bank's recent initiative to merge weaker banks with stronger ones.
Sources said that the MoU between the two banks will be signed at Bangladesh Bank headquarters, where Governor Abdur Rauf Talukder will be present.
In addition to the central bank officials, senior management officials of the two banks will also be present.
The issue of merger with Padma Bank was discussed in Exim Bank's Board of Directors meeting on Thursday, when a decision was taken in this regard.
"We decided to acquire Padma Bank during our board meeting today (Thursday)," said Nazrul Islam Mazumder, chairman of Exim Bank
Padma Bank also called a meeting of the board of directors on the day to decide on the merger. An insider said the merger was decided in this meeting.
According to Bangladesh Bank sources, the central bank will soon formulate a policy to complete the merger of strong banks with weak banks. The merger process will be completed under that policy.
According to a source, the merger between Exim Bank and Padma Bank has been suggested by the central bank as well as at the highest levels of the government.
These two banks were chosen first because the entrepreneurs of the two banks had a joint business.
Similar decisions on other weak banks will be made in the coming days if the merger initiative does not create any volatility in the financial markets.
Why merge?
Exim Bank officials said that Padma Bank has default loans of about Tk3,500 crore, which will be bought by an asset management company.
As a result, the bank's assets (loans and investments) that have deteriorated, will no longer be considered as liabilities.
After that Exim Bank will start operations with the good assets. As a result, there is no fear that Exim Bank's index will deteriorate.
Padma Bank, formerly the Farmers Bank, was approved as a fourth generation bank in 2013.
Among the fourth generation banks, this bank saw major financial scandals within a few years of its inception, followed by major changes in the bank's board of directors.
Farmers Bank was renamed as Padma Bank.
In 2017, several government banks and organizations joined the ownership of this bank. 60 percent of the bank's loans are now in default.
Exim Bank was started in 1999. At present it is a Shariah-compliant bank.
The bank was listed on the stock market in 2004.
Yesterday (Thursday) the market price of Exim Bank shares was Tk10 in the stock market. On this day, the bank's share price increased by 1%.
BB's merger visions
Bangladesh Bank (BB) in a clarification on Tuesday said that weak banks could merge with strong ones by December 2024 on their own, otherwise the central bank will decide on the merger issue.
After December 2024, the central bank will make a decision on which bank will merge with whom, and then the bank's board of directors will lose the authority to decide on the merger issue.
Md Mezbaul Haque, executive director and spokesperson of Bangladesh Bank, said regarding the banks' health index (BHI) report published in the newspapers, it does not present the actual health of banks.
It is a partial report that is prepared by different departments of the central bank for calculating the risky areas of the banking sector, he also said.
The banks in the “red zone” are AB, National, Bangladesh Commerce, Padma, BASIC, National Bank of Pakistan, Janata, Agrani, and Rupali, according to the latest edition of the "Banks Health Index and HEAT Map", a biannual report prepared by the Financial Stability Department of the Bangladesh Bank.
The banks in both the red and yellow zones need supervisory attention, the report stated.
“The number of banks is high given the size of the economy and the excess number of banks will make them grocery stores soon,” Khondkar Ibrahim Khaled, former deputy governor of the BB, had told Dhaka Tribune back in 2020.
There are many small and weak banks in Bangladesh and those should be merged like in India. Otherwise, the situation would not improve, said Ahsan H Mansur, executive director of Policy Research Institute (PRI).
