Halt bank mergers

The Transparency International Bangladesh has urged the central bank to stop the process of merging weaker banks with the relatively stronger ones.

This is because the way it is now proceeding can sidestep the main problem in the banking sector and give impunity to those responsible for loan default and forgery, the anti-graft watchdog said in a press release yesterday.

Recently, the central bank has initiated steps to merge under-performing banks with stronger counterparts to save weak banks in the sector, which has created anxiety and uncertainty among the people in the banking sector.

The TIB highlighted the lack of transparency in the merger process, particularly concerning the management of default loans of weak banks.

Citing media reports, Dr Iftekharuzzaman, executive director of the TIB, said only one bank had shown interest in voluntary merger that suggests that the entire process has been imposed on them arbitrarily.

This is a clear violation of the declared policies, he said.

"How fair and reasonable is it to transfer the burden of default loans and forgeries to good banks without first assessing the assets and liabilities of the weaker ones?"

"It appears that the ongoing actions are akin to prescribing paracetamol for cancer treatment."

On the one hand, the TIB chief said the culture of loan defaults is exacerbated by shielding those responsible for them and forgery under the guise of mergers.

On the other hand, significant attempts are underway to compel good banks to absorb weaker ones. "This has created an atmosphere of anxiety and restlessness across the banking sector," he said.

"It is unrealistic to believe that simply merging banks, without ensuring effective accountability-based good governance to address the basic challenges in the banking sector, will resolve the problem or safeguard the interests of clients."

The TIB criticised the provisions of the merger policy, which permit directors of under-performing banks to return to the board of the stronger bank after a five-year break, as well as the provision for the reappointment of top executives.

"This provision rewards the perpetrators behind the banking crisis with impunity rather than holding them accountable."

Furthermore, the provision to maintain the secrecy of irregularities or corruption to be uncovered during the audits of under-performing banks will not only hide financial discrepancies but also hinder the process of holding individuals accountable, according to the TIB.

"Essentially, it means protection for wrongdoings. It is disheartening to witness what is happening in the name of mergers as it shows how defaulters control banks."

As per the policy, a state-owned asset management company will acquire the non-performing loans of weak banks, indicating that government funds will be used to purchase the bad loans.

This essentially means that loan defaulters have once again been exempted by using public funds. Given the precarious state of the banking sector and public concerns, the TIB, therefore, emphasised essential reforms in the merger policy.

"These changes must be in line with global norms and experiences as well as the opinions of unbiased and renowned experts in the field."

Until the reforms are put in place, the implementation of the decisions made in the name of mergers should remain halted, it added.