Special Correspondent :
Bangladesh Bank (BB) has turned down the proposal of Padma Bank in which the troubled private sector lender wanted merger with a state-owned bank.
Bangladesh Bank (BB) rejected the proposal on the grounds that the state-owned banks themselves have been passing through various problems, including high levels of defaulted loans and capital shortfall and various management problems. “In this situation, it would be better for Padma Bank to fetch investment from abroad than to merge with a state-owned bank,” it opines.
BB passed the opiniton in a letter to the secretary of the financial institutions division (FID) under the ministry of finance on October 5.
Padma Bank, formerly known as Farmers Bank, on 8 July submitted a merger and acquisition proposal to the FID in an effort to make it stronger one amid continual deterioration of its financial health.
The banks it wants to merge with are Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank and Bangladesh Development Bank.
In the letter the Padma Bank said it faced a lot of constraints after the start of its new journey, including a severe shortfall liquidity.
Later on August 25, the FID in a letter asked the BB to scrutinise the proposal for an opinion on the issue.
Regarding the merger and acquisition of Padma Bank, BB said that the Banking Company Act 1991 provides for the formulation of a consolidation scheme on the basis of government approval and instructions from the central bank.
In this case, the central bank can take full control of the distressed bank and consolidate with any other bank or liquidation on the basis of a moratorium order.
Besides, the Banking Company Act, 1991 and the Company Act, 1994, stated that in a merger, the depositors, borrowers and shareholders should have the opportunity to benefit equally. In this case, the parties concerned have to seek satisfaction or certification from BB to apply to the High Court to the effect that the borrowers, shareholders and depositors of the two banks concerned will not be harmed by the consolidation.
For this, special audit has to be done to determine the liability and value of the assets of the two banks and their actual condition in case of merger, cites the BB letter.
Prior to the merger application, Padma Bank submitted a proposal to the central bank on June 15 seeking to raise necessary capital through foreign investment with the help of DelMorgan & Co, a USA-based global investment bank. BB approved the proposal in principal on August 2. Besides, Padma Bank Chairman and CEO have already met representative officials of DelMorgan and it told the BB that progress was made in attracting foreign investment. In this situation, BB thinks that it would be better for Padma Bank to meet the capital capital by raising foreign investment instead of consolidation, reads the BB letter.
When asked, BB sspokesperson Md. Serajul Islam said, “Padma Bank has applied for merger with state-owned banks. It has also taken steps to raise capital through foreign investment. Therefore, the central bank thinks that it would be better for Padma Bank to raise the capital by channelling foreign investment if possible. This opinion has been informed to the ministry of finance. Now, the government will take the final decision.”
Earlier, the government rescued the bank from collapse by injecting Tk 715 crore in the form of capital provided by Investment Corporation of Bangladesh, Sonali Bank, Janata Bank, Agrani Bank and Rupali Bank.
