Six Islamic banks are likely to be merged initially, said central bank officials.
He assured depositors their funds would remain safe during the transition, as the government would take over the merged banks
Forceful mergers of banks will not be the right step and banks should agree for the consolidation in the first place, said Mohammed Farashuddin, a former governor of the Bangladesh Bank
National Bank officials do not want the bank to merge with another entity.
Money deposited by individuals and institutions with banks, which have decided to go for mergers, will remain completely safe and secure, Bangladesh Bank said in a statement yesterday.
The Transparency International Bangladesh has urged the central bank to stop the process of merging weaker banks with the relatively stronger ones.
In general, five issues need to be borne in mind when it comes to bank mergers in Bangladesh.
A recent rush to withdraw money from the BASIC Bank and National Bank is worsening the situation the troubled institutions are facing.
As a state-run bank, BASIC Bank's officers and employees enjoy and job security alongside various employee benefits -- including salaries, provident fund facilities, gratuity, retirement allowance -- which may differ from those offered at City Bank.
United Commercial Bank (UCB) is likely to take over trouble-ridden National Bank Ltd (NBL), according to officials of the lenders.
Troubled state-owned BASIC Bank is likely to be acquired by private sector lender City Bank as the central bank is forging full steam ahead with its plan to engineer the takeover of weak banks with stronger ones.
The merger guideline for banks and financial institutions is being hailed as a major step towards fixing the problem in the financial sector, which has been weighed down by massive default loans and weak corporate governance.
Bangladesh Development Bank Ltd (BDBL) will be merged with Sonali Bank while Rajshahi Krishi Unnayan Bank (Rakub) will be taken over by Bangladesh Krishi Bank (BKB), according to a central bank official.
The guideline comes four months after the BB issued the Prompt Corrective Action (PCA) framework to give a procedural direction for mergers and acquisitions amidst the deteriorating financial condition of some banks and financial institutions.
The government should come up with a clear guideline complying with the global best practices before compelling banks to merge, the World Bank has said.
The WB said before initiating any merger processes, detailed guidelines on mergers and acquisitions need to be issued, allowing banks a clear idea about the process involved
There are four main reasons why banks fail: credit risk, interest rate risk, foreign exchange risk, and liquidity risk (bank run).
Initially, it is the general stock investors who might be at the receiving end of the process while the loan defaulters, whose misdeeds are largely responsible for Padma Bank’s current misfortunes, might come out victorious.
Both banks are weak as per a Bangladesh Bank health index of banks and it is very difficult to get any positive result by merging two weak banks, said Fahmida Khatun, executive director of the Centre for Policy Dialogue.
