Kazi Zahidul Hasan :
The central bank has finally moved forward to formulate merger policy to absorb systematic shocks of the weak banks, in a fresh bid to strengthen the banking system, which is burdened by a high-level of non-performing loans.
A committee led by Bangladesh Bank’s (BB) General Manager of Financial Stability Department has been formed to work with the formation of the merger policy, people familiar with the matter said.
They said, the committee has been asked to submit a report to the BB’s Banking Regulation and Policy Department (BRPD) in this regard within the shortest possible time.
Previously, the banking sectors’ experts had pushed for consolidating the weaker banks through mergers and acquisitions in order to improve their operational efficiency. But the process was stalled due to unwillingness of the government’s policymakers and political pressure.
“BB has already taken a number of steps to wash away the banking sectors’ bad debts which have grown considerably in the recent years amid loan irregularities and poor corporate governance in respective banks. It has taken the move to formulate the merger policy considering the current state of the banking sector,” a senior BB official told The New Nation, preferring anonymity.
He said, BB is concerned at the soaring banking sectors’ non-performing loans and the situated has arisen for inefficiency and poor performance of a number of banks.
“Without the comprehensive plan for mergers of weak banks, it is not possible to rein in the banking sectors’ ever rising bad loans and strengthen the banking sector,” he added.
The BB official further said that many countries, including India, have promulgated mergers and acquisitions law for elevating banks’ functional competence and boost their competitive streak.
The amount of non-performing loan (NPL) stood at Tk 93,911 crore at the end of 2018, up from Tk 74,303 crore a year ago, according to data from the central bank.
The NPLs now accounted for 10.30 per cent of the banking sector’s total loans, up from 9.31 percent in 2017.
“The move is timely when the banking sector is plagued by irregularities and soaring bad loans,” Dr Khandaker Ibrahim Khaled, a former BB Deputy Governor told The New Nation yesterday.
He said the central bank has finally supported banks to merge considering the current economic reality and poor performance of a number of banks.
“Merger can be done among relatively weaker banks or two well performing banks absorbing a third one. This will create a mega bank, which will have far higher lending ability and operational efficiency,” he added.
Dr Khandaker Ibrahim Khaled further said that merger would help improve customer services, involve synergies in the branch network and reduce operating costs.
Underscoring the need for bank merger, Dr AB Mirza Azizul Islam, a former Adviser to the Caretaker Government said, the authorities should consider merging weak banks with the strong ones for the betterment of the sector and the economy.
“We need to pursue a merger of some banks for stability of the entire sector. The central bank should frame a befitting policy in this regard,” he added.
Dr AB Mirza Azizul Islam also stressed the need for political will, which is the key to establishing governance and accountability in the banking sector.
