The anti-corruption organization Transparency International Bangladesh (TIB) believes that the international and Bangladesh Bank policies are not being followed in the merger of the weak bank with the strong bank.
In a press release on Tuesday, the agency said, “The central bank has embarked on consolidation in the name of protecting weak banks in the banking sector, which is supposed to be in line with global practices in dealing with financial sector crises.”
“But this sensitive and complex task is being rushed without following internationally followed standards and norms and even the Central Bank’s own declared policies.”
Economists have been urging for the last few years to reduce the number of banks in the country. The ruling Awami League has also kept the issue of banking sector reforms in its latest election manifesto.
Bangladesh Bank has taken the initiative to merge the weak and at-risk banks with the strong ones. Apart from fixing a two-and-a-half-year ‘roadmap (action strategy)’ as part of the plan, the ‘Prompt Corrective Action’ or PCA policy has been announced giving banks one year.
Although the central bank said that 10 public-private banks are seeking to merge ‘voluntarily’, TIB says otherwise.
Iftekharuzzman, executive director of TIB, said, “According to media reports, none of the banks showed interest in merging on their own initiative, except for one weak bank, and the strong banks that came up in the process did not voluntarily and knowingly agree to join it on their own initiative.” That is, the whole process is being tried to be imposed through arbitrariness from the very beginning, which is a clear violation of the declared principles.
“Furthermore, how logical and fair is it to impose the burden of default and fraud on the shoulders of apparently strong banks in the name of consolidation without a full assessment of the assets and liabilities of the weak banks? It appears that what is happening is a reversal of the use of paracetamol in the treatment of cancer.”
On April 4, the central bank published a complete policy on bank mergers. Before that, the merger of the private Padma Bank with the Sharia-based Exim Bank was announced. The two banks have already signed a memorandum of understanding with the approval of Bangladesh Bank.
After the issuance of the policy, the boards of the two companies approved the merger of BDBL with the state-owned Sonali Bank. Besides, discussions are going on with Bangladesh Bank about merging the state-owned Basic Bank with the private City Bank and National Bank with UCB.
Apart from this, the Rajshahi Agricultural Development Bank (Raqab) will be merged with the state-owned specialized bank Bangladesh Krishi Bank.
Iftekharuzzman, executive director of TIB, said, “There are three types of banks in the merger discussion: public-public, private-public and private-private. In this case, it is not clear how these banks have been selected for merger on a priority basis, or how it has been decided that a strong bank will be merged with a weak bank.
“Several banks that are out of merger talks have been sustained with liquidity support. On the other hand, the amount of defaulted loans of the two government banks known to be strong to take over the two weak banks is also quite large. In such a reality, without ensuring effective accountability-based good governance to tackle the core problems of the banking sector, the idea that consolidation alone can tackle the crisis or protect customer interests or reduce defaults is truly illusory.”
TIB’s Iftekharuzzaman criticized the opportunity given to directors of weak banks in the merger policy to return to the board of the merged bank after 5 years.
He said, “This provision is a provision to reward those responsible for the crisis of weak banks instead of accountability and to give a kind of impunity. Besides, if any new irregularities or corruption emerges during the audit of the weak bank, the provision of keeping the matter secret will not only cover up the image of financial irregularities, but at the same time, the process of holding the responsible persons accountable will also be hindered. Which, in a word, amounts to protecting injustice.”
In the statement, TIB said, necessary reforms in the bank merger policy and taking measures accordingly are necessary to get the expected results based on the opinion of independent experts of repute in the concerned sector and in the light of international standards and experience.
Besides, the TIB has called for the suspension of the implementation of the decisions already taken in the name of merger.
What Bangladesh Bank says
Bangladesh Bank is talking about working on a merger for two purposes.
In a press release on Tuesday, the central bank said, “Bangladesh will be established as a developing economy country in 2026. As a result, the country will need more capable banks and financial institutions to provide effective banking services to the developing economy, so that there is no hindrance in investment in economic development.” “
The second objective is to “strengthen the financial sector by solving the existing problems of relatively weak banks and at the same time improving the operations of relatively strong banks; so that the merged bank-company can provide more services in the public interest.”
According to the notification, the deposits of individual and institutional depositors in the banks undergoing merger will be completely safe and secure.
Even after the completion of the merger, the current accounts of the account holders of respective banks will continue to operate.
