A recent rush to withdraw money from the BASIC Bank and National Bank is worsening the situation the troubled institutions are facing.

Depositors flocked to branches of the two banks last week following reports that BASIC Bank would soon merge with City Bank and National Bank with UCBL.

On April 18, the management of the state-run BASIC Bank wrote to the Financial Institution Division of the finance ministry, asking for advice on how to cope with the situation.

Officials said almost Tk 2,000 crore was withdrawn from the bank in a couple of days last week.

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In June last year, deposits stood at Tk 15,935 crore at BASIC Bank. The amount has now come down to around Tk 12,000 crore, according to data from the bank.

In another letter sent to the finance ministry last week, the bank's management said it wanted the institution to merge with another state-run entity instead of a private one.

Contacted, Abu Md Mofazzal, acting managing director of BASIC Bank, said different government entities chose his bank to deposit money because it was a state-run institution.

The government bodies are now withdrawing their funds because the bank is merging with City Bank, which is private, he said.

Managers of BASIC Bank branches are receiving many phone calls from institutions that want to withdraw their money, Mofazzal said.

"This will ultimately be the government's loss," he said.

In 2014, a central bank investigation found BASIC Bank Chairman Sheikh Abdul Hye Bacchu's involvement in embezzlement of Tk 4,500 crore. This ultimately diminished the bank's financial health from which it is yet to recover.

As of December last year, the bank's bad loans stood at Tk 8,204 crore, which is 64 percent of its total disbursed loans.

On April 16, the officials and employees of the bank submitted a memorandum to the Bangladesh Bank governor, saying that they were worried about their future after hearing about the merger proposal.

National Bank is also struggling to keep up with the horde of clients waiting to withdraw their money.

Amid reports of financial irregularities, Bangladesh Bank in December last year reconstituted National Bank's board of directors.

National Bank Managing Director Touhidul Alam Khan said the sudden rush for withdrawal was a tremendous pressure for the firm.

"We are visiting our branches to talk to depositors and request them not to withdraw their money," he said.

From January to September last year, the bank made a loss of Tk 1,123 crore. In 2022, it suffered a loss of Tk 357 crore.

The bank's bad loans stood at Tk 12,368 crore which was 28.92 percent of its total disbursed loans, shows BB data.

According to industry insiders, Bangladesh Bank's recent decision to merge different banks has sent a wave of fear among depositors, stakeholders, bankers, and directors.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said, "Both the weak and strong banks are likely to face the rush to withdraw deposits. But the central bank and the government must ensure that depositors do not lose their money."

However, Mashrur Arefin, managing director of the City Bank, said people often do not like changes.

There should not be much to worry about if the central bank and the government financially support writing-off impaired assets and operating loss of the weak bank, he said.

He said that if the merger of the two balance-sheets takes place after restructuring of the weak bank, then all fears are unnecessary.