AMID mounting losses in the state-run banks, the Ministry of Finance is speculating as to whether mergers among public sector banks will be sufficient to get rid of pressure in the state coffers but would the merging enable the banks to get solvent when mismanagement is high and governmental interception rips against laws is the million dollar question.
The New Nation reported that Finance Division of the Ministry has started an internal exercise to ascertain the mergers among the state-owned banks. It is mysterious as to why the government does not initiate crackdowns against the loan defaulters instead of recapitalising the banks that struggle due to capital shortfall thereby giving loan defaulters default government protection for their impunity.
Officials of the Finance Ministry said the Ministry has initially moved forward to merge Bangladesh Krishi Bank (BKB), Rajshahi Krishi Unnayan Bank (RAKUB), Bangladesh Development Bank Limited (BDBL) and BASIC Bank. Among them, BDBL and BASIC are specialised commercial banks and BKB and RAKUB are specialised banks. They are incurring huge losses every year due to operational inefficiency, loan irregularities and mismanagement.
The ministry said that the objective of the merger is to lessen the burden of the government which provides funds every year to tackle capital shortfall of the public sector banks. The Finance Division will suggest the setting up of an expert panel to consider and oversee bank mergers among public sector banks. State-run commercial banks have been losing money over the years, but the government did not opt to merge the banks as the banks have huge staff, lending exposure and client base.
A recent study conducted by Bangladesh Institute of Bank Management (BIBM) revealed that some 72 percent bankers are in favour of reducing the number of banks through merger or acquisition, as their number is high given the size of the economy. About 88 percent of the respondents said mergers, acquisitions or takeovers may be executed to trim the number of banks, particularly the weak ones.
Aggressive lending by banks in the competitive market has caused pileup of bad loans. As of June this year, total default loans stood at Tk 63,365 crore, accounting for 10.06 percent of the total outstanding loans. State-owned banks accounted for one-third of the total sour loans. The government had provided Tk 4,500 crore funds to the state-owned banks in the last five years to overcome their capital shortfall caused by soaring defaulted loans, financial irregularities and losses. The six public banks have been operating their activities through 3,710 branches across the country. Of them, about 533 branches are now running with losses.
Moreover, the new amendment to the Banking Companies Act to allow four members from a single family to become directors of the board will bring disaster for the sector. The family dominance will only increase the size of default loans. This amendment to the banking system will surge the numbers of default loans. We ask the government to conduct empirical research to reach a decision to merge the weak banks in the public sector.
