EXPERTS’ recommendations at a seminar on Banking sector in Bangladesh and its reform and governance on Saturday in the city calling for merger of weak banks with strong ones has come at a time when the country is witnessing most of its 56 banks without enough business and fighting for survival. They have rightly emphasized that the country needs to pursue merger at the moment for stability of the entire sector while criticizing the government for giving new licenses on political ground ignoring the size of business in a small economy like Bangladesh.
One of the adverse effects of this over-crowding is that when banks have lower business, they charge higher interest to earn profit and this in turn is drying new business investments. Because investors don’t want to borrow at higher interest rates particularly when they are scared of risk of many uncertain political factors. So the overall situation in the country’s banking sector undoubtedly makes the stronger case for merger of many poorly performing banks with stronger ones. They can pull the resources together while reducing the cost of management and improving governance.
What they want to say is that the size of the economy and business prosperity are the denominator of how many banks can operate successfully in a country and our situation is not permissible to allow as many banks to compete each others. But such merger requires political will and the central bank needs independence to guide the entire sector depending on business outlook, not by dictation of the government’s political will which always favour to set up new banks to hold party control on money and wealth. In their view the financial viability factor and political considerations stand apart from each other in the country at the moment and therefore they have laid emphasis on political will to make the banking sector reform work.
As it appears Bangladesh Bank has already introduced the necessary 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. There were at least 25 cases where private sector banks merged with the public sector banks. Malaysia has brought down its total number of banks to just 6 from 16 in recent years.
For Bangladesh to put it simply, 56 banks are not viable and they need to go for merger to create a healthy business environment to share common prosperity by all.
