The merger process initiated by Bangladesh Bank, aiming to consolidate weak banks with stronger ones, has encountered significant obstacles, possibly halting midway.
Currently, only Padma Bank has expressed a willingness to merge, while other banks are reluctant to follow the central bank's merger directives.
Criticism has mounted against the coercion tactics employed in the merger process, with concerns raised about non-compliance with international and Bangladesh Bank policies.
Recently, National Bank decided against merging with UCB following a board meeting decision, while uncertainty looms over the merger of state-owned BASIC Bank due to opposition from employees.
Similarly, doubts surround the merger of Rajshahi Krishi Unnayan Bank (Rakub) with Bangladesh Krishi Bank due to concerns about financial losses and loan scams in the former.
The proposed merger of Bangladesh Development Bank PLC (BDBL) with Sonali Bank, despite the former's strong performance, has also faced criticism, given the latter's financial crisis.
These actions by the central bank have come under scrutiny from various quarters, including Transparency International Bangladesh (TIB), which has called for the suspension of the merger process, citing deviations from global best practices and central bank policies.
Dr Iftekharuzzaman, executive director of TIB, said: “None of the banks, except a weak bank, showed interest in merging on their own initiative. Again, it is not that the strong banks that have come to this process voluntarily and knowingly agreed to join it on their own initiative. That is, the whole process is being tried to be imposed through arbitrariness from the very beginning, which is a clear violation of the declared principles.”
Meanwhile, the timeline for completing the merger process, aimed at reducing the number of banks from 10 to 5, remains uncertain, with top executives estimating a legal process spanning four to five years.
While auditors have been appointed for Exim and Padma banks as part of preliminary merger preparations, further steps require court approval.
However, Central Bank Executive Director and spokesperson Majbaul Haque emphasized that the bank mergers are a long-term process.
He said: “If a weak bank becomes strong while this process goes on or decides against merger, it can withdraw until it is finalized.”
Amidst growing panic in the banking sector, the central bank announced on April 15 that no new merger applications would be accepted outside of the designated five banks.
This decision diverges from earlier statements by the central bank governor, who had suggested merging eight to ten banks.
The Prompt Corrective Action (PCA) framework issued in December aims to guide the consolidation process, focusing on indicators such as defaulted loans, capital adequacy, management, and liquidity.
Non-voluntary mergers are slated to begin from March 2025 if no progress is made by December of the preceding year.
National Bank opposes
National Bank has officially decided against merging with United Commercial Bank (UCB), a resolution reached during the Board of Directors meeting on Saturday.
An official at National Bank revealed that the merger proposal with UCB came suddenly and without prior discussion on April 9, causing panic among depositors and officials just before Eid.
Consequently, many individuals began withdrawing their funds from the bank.
However, this unilateral decision was not endorsed by the board of directors. Instead, the bank plans to bolster its debt collection efforts as part of a turnaround strategy.
Furthermore, to steer the bank towards recovery, a new board of directors has been appointed.
Strong objection from Basic Bank
Meanwhile, employees and officers of Basic Bank have vehemently objected to the proposed merger with the private entity City Bank.
In a memorandum addressed to the finance minister and the central bank governor, they expressed their strong opposition.
The memorandum highlights Basic Bank's inception in 1989 with a mission to support small industries in Bangladesh.
Initially established in 1992 as a 100% state-owned bank, Basic Bank has since provided essential financial services on behalf of the government.
In 2015, it was transformed into a fully state-owned commercial bank. The officers of Basic Bank are paid according to the National Pay Scale-2015.
Discussions on merging this state-owned bank with the privately-owned City Bank are deemed inconsistent and unreasonable by the officers and employees.
Which one is stronger – Rakub or Krishi Bank?
Officials of Rakub said that the bank has consistently achieved operating profits over the last three financial years.
In response to the proposed merger of Bangladesh Krishi Bank and Rakub, a protest and human chain program took place in Rajshahi, demanding the cessation of the merger process.
Should this demand be ignored, a warning has been issued to potentially disrupt activities in the northern region.
BDBL in strong position
Meanwhile, BDBL Officers Association has penned an open letter to the prime minister following the decision of merger with Sonali Bank.
According to the contents of the letter, while BDBL demonstrates strong performance across various indicators, it is slated for merger with Sonali Bank, which is facing its own set of challenges.
The letter said the ongoing merger activities within the banking sector have precipitated a sense of instability in the country's economy. While depositors and customers find themselves grappling with uncertainty, borrowers are delaying loan repayments, exacerbating the strain on the financial system. Additionally, bank officials are experiencing a sense of insecurity amidst the turbulence.
Many withdrawing money
Meanwhile, there has been a notable increase in bank withdrawals, particularly following news of the potential merger involving National Bank, BASIC Bank, and UCB.
Last week, customers flocked to various branches of these banks, heightening the strain on their operations.
On April 18, the management of state-owned BASIC Bank reached out to the Financial Institutions Department of the Ministry of Finance seeking guidance on how to address the worsening situation.
BASIC Bank officials disclosed that approximately Tk2,000 crore was withdrawn from the bank within a few days last week.
In June of the previous year, deposits in BASIC Bank totaled Tk15,935 crore. However, according to the latest data, this figure has dwindled to around Tk12,000 crores.
Despite the merger, Bangladesh Bank reassured depositors that their funds would remain completely safe and secure.
In a notification issued to the media, the central bank affirmed that after the merger process is finalized, account holders of the two banks involved will be able to maintain their accounts as usual.
Furthermore, the merger will proceed with the consent of sponsor directors, current board members, and common shareholders of the banks, adhering to the guidelines outlined in the circular issued by Bangladesh Bank on April 4.
