Struggling Padma Bank is set to be taken over by Shariah-based Exim Bank as part of the Bangladesh Bank plan to rein in the runaway defaulted loans to a reasonable level and bring good governance to the banking sector.

As part of the plan, as many as 10 weak banks could be absorbed into sound banks, and Padma Bank's acquisition is the first of the mergers.

At the end of last year, about 62 percent of Padma bank's outstanding loans of Tk 5,740 crore had defaulted, according to BB data.

On the other hand, Exim Bank had about 3.5 percent of its total outstanding loans of Tk 46,937.63 crore turning sour.

The decision to acquire the scam-hit Padma Bank was taken yesterday at the 187th board meeting of Exim Bank, chaired by Nazrul Islam Mazumder, who is also the chairman of Bangladesh Association of Banks (BAB), a forum of private bank owners, since 2008.

The two banks will sign a letter of intent on March 18 in the presence of BB Governor Abdur Rouf Talukder at the central bank headquarters, Mazumder told The Daily Star after the board meeting.

After that, the process of acquisition will start, he added.

This will be the first voluntary bank acquisition in the country and the Padma Bank name will no longer exist.

The Padma Bank board also took the decision to merge with Exim Bank at its board meeting yesterday, Tarek Reaz Khan, the bank's managing director and chief executive officer, told The Daily Star.

The process of merger will be conducted as per the central bank regulations and guidelines.

Asked if he would continue to hold the post, Tarek said there is no precedent of having two MDs in a bank, so he will follow the instruction of the banking regulator here.

Meanwhile, the officials of weak and scam-hit banks are in a state of panic as they think they will lose their jobs after the acquisition by sound banks.

A half dozen officials of Padma Bank told The Daily Star yesterday that they fear losing their jobs.

The depositors, who were already facing trouble getting back their money, are also panicking about whether their deposits will be gobbled up by Exim Bank entirely.

The protection of depositors' money will be the priority in the case of mergers and acquisitions of weak banks, BB spokesperson Md Mezbaul Haque told journalists on Wednesday.

"The protection of strong banks will also be a priority," he added.

Before the acquisition, depositors and employees of banks must be assured that no one will lose their jobs and depositors will get their money back, said Salehuddin Ahmed, former BB governor.

"The central bank will have to do a huge workout and help those banks prepare for acquisition. There are many examples of mergers and acquisitions in our country. A merger is not a bad thing if it is done properly," he added.

The move to merge weak banks with sound banks got impetus after a delegation of the BAB met Talukder on March 4.

At the meeting, Talukder asked the banks' directors to take a call on voluntary mergers within December or else the banking regulator would merge the weak banks with strong banks afterwards.

The move did not go down well with bank directors of sound banks.

"It would be very frustrating for us if we were forced to acquire a weak bank," an MD of a private bank told The Daily Star on the condition of anonymity due to the sensitivity of the issue.

When a weak bank's balance sheet merges with a sound one then the sound bank will also face trouble in running its business, he added.

From that point of view, the Padma-Exim merger will be a test case for the sector.

Padma Bank, which was established as Farmers Bank in 2013, became a hotbed for financial irregularities within just three years of its inception. More than Tk 3,500 crore was siphoned out of the bank in that period, according to the BB.

Its ownership and management underwent a significant overhaul in 2017 after Muhiuddin Khan Alamgir, a former presidium member of the Awami League, stepped down as chairman.

To rescue Farmers Bank from financial distress, the government stepped in with a financial lifeline: state-owned Investment Corporation of Bangladesh, Sonali Bank, Janata Bank, Agrani Bank and Rupali Bank bought a 60 percent stake in the bank for Tk 715 crore.

The bank was also rebranded to Padma Bank in 2019 to give it a clean slate. But the ghosts of Farmers Bank continued to haunt the institution.