Merger & acquisition or closure considered only way-out for troubled banks

FE REPORT | Sunday, 14 February 2021

The government is unwilling to go for merger and acquisition (M&A) in the banking sector though the latter needs it most, speakers at a webinar said on Saturday.

The need has become even stronger due to the Covid-19 impact on the economy and the financial sector.

Some participants, however, argued that Bangladesh should adopt an exit policy for banks instead of M&A where weak banks would leave the market automatically.

Bankers and economists took part in the discussion on merger and acquisition in Bangladesh's banking sector. Banking Sector Policy Support (BSPS), a platform of bankers, organised the event.

Dr Ahsan H Mansur, executive director at the Policy Research Institute of Bangladesh (PRI) and Chairman of BRAC Bank, Dr Toufic Ahmad Choudhury, director general at the Bangladesh Academy for Securities Market, Kazi Mahmood Sattar, board directors at bKash, and Anis A. Khan, vice president at the Metropolitan Chamber of Commerce and Industry, Dhaka (MCCI), spoke at the programme, among others.

Dr. Shah Md Ahsan Habib. a professor and director (training) at the Bangladesh Institute of Bank Management (BIBM), presented the keynote paper.

Speaking at the programme, Dr Ahsan H. Mansur said that merger and acquisition became very much important for the banking sector amid the fallout from the Covid-19 pandemic.

Referring to the large number of M&A exercises taking place during the Asian Financial Crisis, he said the crisis period pushed such development in the financial market.

He said the government's willingness is required for merger and acquisition in Bangladesh.

He said banks will not do it spontaneously as they believe that merger would render them powerless.

"Government will not force the weak banks as it has issued licenses in their favour".

He said: "We did not merge Padma Bank with other banks, rather we gave life to it by injecting funds".

He said many banks will enter the market in the future on political grounds. And they know that the central bank and the government would help them survive.

He said: "We still don't know the actual status of our banks in the pandemic. We will know it after the end of the moratorium period".

He however said if there is M&A and that must be 'government-led' otherwise it will not happen.

Speaking in the programme, Dr Toufic Ahmad Choudhury said there is now a need for an exit policy for banks where the poor performing banks will leave the market.

"The poor performing banks will automatically leave the market".

Kazi Mamood Sattar said that there is a lack of willingness of the stakeholders to go for M&A.

He said local banks lack good governance so many good banks will not show interest in M&A.

Citing an example, he said HSBC had moved to merge with the local Pubali Bank,but it refrained from taking over sensing poor governance there.

He said transparency in the banking sector is also required for M&A.

Speaking at the programme, Anis A. Khan said that the banking system needs to be automated for enhancing its efficiency.

He said banks could adopt more technology to be efficient and survive in the industry.

He said: "We don't have a credit rating mechanism for the clients, as a result, we take time for approving loans".

Presenting the keynote paper, Dr Habib said that Covid-19 created new grounds for banking and financial sector consolidation through M&A across the world. The same is also relevant to Bangladesh's banking sector.

He said a good number of banks had been trying to address non-performing loans and the associated capital challenges for a long time.

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