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Bankers-BB consultation on mergers and acquisitions

Bank owners agree, yet air worry

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Key shareholders of commercial banks agree in principle on proposed mergers and acquisitions for bail-in of weak banks under government's decisive financial-sector reform recipe, but on a note of concern.

The latest developments on Bangladesh's banking front came when the owners of bank Monday met with Bangladesh Bank governor Abdur Rouf Talukder for a clear vision of such amalgamation move.

The banks' biggies, visibly panicked by possible mergers between weak and stronger banks, placed their concern that it could badly harm the financial fundamentals of the comparatively well-performing banks, according to the meeting sources.

They also wanted to know the criteria and process regarding the mergers and acquisitions of the possible non-performing banks as far as the recently circulated prompt corrective action (PCA) framework is concerned.

On anonymity, the chairman of a private commercial bank said the latest amended Bank Company Act 2023 vested in the Bangladesh Bank (BB) authority to initiate forced mergers between banks and the BB in PCA framework clearly has mentioned the possible merger move against banks failing to comply with the framework.

A question cropped if the central bank would go for forced merger of the weak banks with the banks having sound financial health ignoring interests of the boards of good banks. "And the governor assured us of not doing anything that will hurt the good banks, which is good. But our concern will not ease until the complete guidelines about the mergers are made," the bank chairman added.

Emerging from the talks, Chairman of Bangladesh Association of Banks (BAB), an apex body of bank majors, Nazrul Islam Mazumder said the concerns surrounding possible merger issue are over as the governor assured them that the measure would not hurt fundamentals of the stronger banks.

"Yes, we had concerns about the would-be merger move. But the government responded to queries well and shared the advantages of merger. So, the merger-related worries are over," he added.

Mr. Mazumder, also chairman of Exim Bank, said they now started realising that mergers would help weak banks become good and good banks become ever further stronger.

He mentions that bank mergers are being practiced in many countries and they would accept this for the betterment of the economy. But it is not clear in which process it would be done.

"We don't know whether the merger process would be executed in consultation with the shareholders or the central bank decide alone," he said, about modus operandi of the prompt corrective action, meant for tidying the banking sector reportedly riddled with deviations and ballooning bad loans.

Spokesperson for the central bank Md Mezbaul Haque said merger of banks is not a new concept--there are many evidences of such initiative in many countries. And the central bank will follow the globally most recognised method before execution of such merger, if necessary.

"So, there is no need to get panicked by the merger issue as the central bank will execute it in a way so that banks become further stronger," he said to allay worries.

Regarding failure to comply with the PCA framework, Mr Haque, also an executive director of the BB, says there are many regulatory actions the PCA-noncompliant banks would face.

"Merger is one of the actions and the central bank will formulate a complete policy guideline regarding where everything will be in detail about the merger process," he adds.

About benefits a good bank can get being merged with a weak one, he cites an example: the so-called weak bank will have a client base which can be acquired by the good bank through the merger.

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