Kazi Zahidul Hasan :
The government should consider merger of weak banks with the strong ones taking cue from neighbouring India to ensure stability of the country’s banking sector, analysts said yesterday.
The Indian government recently announced merger of 10 ailing public banks into four in a bid to enhance their operational efficiency, credit capacity and global competitiveness.
“Bangladesh should also pursue merger of problematic banks with the better performing ones for ensuring stability of the entire sector,” Dr AB Mirza Azizul Islam, a former adviser to the caretaker government, told The New Nation.
He said that the government allowed too many banks in a relatively small economy that has created an uneven competition among the banks.
“As their business volume is low, they have gone for aggressive lending without proper risk assessment turning a big volume of their credit into ‘non-performing loans’, ultimately harming the stability of the banking sector,” he said.
Dr Mirza Azizul Islam said that Bangladesh Bank introduced guidelines on merger and acquisition of banks and finance companies in 2006, but no such merger took place yet.
In contrast, there have been as many as 34 mergers and acquisitions so far in the banking and finance sector in India. In the latest episode, the Indian government announced merger of 10 ailing public banks into four. “So, the government of Bangladesh should actively consider merger of weak commercial banks with healthy ones to help overcome the ongoing banking crisis,” he added.
Dr Mirza Azizul Islam also stressed the need for the government’s political will in establishing good governance and accountability in the banking sector.
Earlier, Finance Minister AHM Mustafa Kamal had announced to carry out comprehensive financial and banking sector reforms in the budget for 2019-2020 fiscal year, with plans to set up a banking commission and amendment of the Bank Company Act. Weak banks are going to be merged, according to the reforms plan of the Finance Minister.
“The government should think about merging of problematic banks considering greater interest of the banking sector,” Dr Salehuddin Ahmed, a former Bangladesh Bank (BB) Governor, told The New Nation.
He said that the situation of a number of banks, especially public sector’s ones, have already turned worse owing to poor governance, rising bad loans and scams.
“Major loan scams involving private sector lenders have shaken the country’s banking industry. Now, they have been maintaining an abnormally high non-performing loan. Under the circumstances, merger may be a viable option for them,” he added.
Dr Salehuddin Ahmed, however, said that 56 banks are now operating in Bangladesh and having too many banks in the economy is not a viable option.
He cited the example of Malaysia, which brought down its total number of banks to just 6 from 16 in recent years.
Merger between banks in Bangladesh is not a common phenomenon but the concept is not new. In the past, two banks, namely Bangladesh Shilpa Bank and the Bangladesh Shilpa Rin Sangstha, merged to form Bangladesh Development Bank Limited in 2009. However, it must be noted that the practice of bank mergers is still at its nascent stage in Bangladesh.
“Merger of banks and financial institutions is common across the world, though the concept is newer in Bangladesh. Time has come to support merger here to rescue the ailing banks and financial institutions,” Dr Khondkar Ibrahim Khaled, former BB Deputy Governor told The New Nation.
He said the government and the central bank should prepare a guideline in this regard to deal with the issue.
“Necessary laws should be formulated immediately to advance merger of banks,” said Khondkar Ibrahim Khaled.
