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Experts say merger of BASIC Bank, BDBL unlikely to deliver results

| Updated: June 29, 2021 17:23:46

Experts say merger of BASIC Bank, BDBL unlikely to deliver results

An 'imposed' merger of the scam-hit BASIC Bank with the Bangladesh Development Bank Limited (BDBL) is unlikely to yield any tangible result, experts have said.

They expressed scepticism about fruitful outcome of such a move and demanded stern actions against the key suspects of the BASIC's loan scams.

The merger initiative must be preceded by serious actions against the 'real' culprits who ruined a state-owned bank that once was seen as a role model in the banking business.

The punishment would help build depositors' confidence, which is essential for sustainability of any financial institution, they viewed.

The experts said despite being a better performing bank the BDBL is not strong enough to shoulder the burden such as the BASIC Bank. "It will just crumble', they felt.

The financial sector experts made the observations following a recent disclosure by Finance Minister AHM Mustafa Kamal that the government would favour merger of the troubled bank with the BDBL.

In an interview with a local newspaper, the minister said that the merger of the two state-owned banks would help improve the BASIC's financial health while there would not be any objection from any quarter.

Actually, BASIC Bank Limited was one of the best state-run banks until 2009 when the government appointed Sheikh Abdul Hye Bacchu as its chairman, according to a senior official of the Bangladesh Bank (BB).

But its financial health deteriorated significantly during the 2010-14 period mainly due to irregularities of various types, he said.

The BASIC Bank had provided a list of 60 loan cases involving Tk 31.97 billion of its Gulshan, Shantinagar, Dilkusha, Babubazar, main branch of Dhaka, and Agrabad branch of Chittagong to an external audit firm for preparing the annual report for 2019.

Most of the loans were sanctioned, disbursed and renewed during the 2010-14 period without complying with the relevant rules and regulations, according to the audit report.

The top managements of the two banks are yet to be informed formally about any merger initiative, but they have come to know about the government's plan through the newspapers reports.

"The government should take stern action first against the culprits of the BASIC Bank for their involvement with the irregularities to restore the depositors' confidence," former BB governor Dr Salehuddin Ahmed told the FE.

He also said that the government should set an example by ensuring the punishment. Otherwise, he added, the scammers may directly or indirectly influence the activities of the bank created through the merger of BASIC and BDBL.

"The merger scheme will have to be designed properly with an emphasis on priority sectors considering the previous identity of the two state-run banks," Dr Ahmed said.

Toufic Ahmed Chowdhury, former director general of Bangladesh Institute of Bank Management (BIBM), also thought that it would be a bad example if the government goes for the merger initiative without punishing the culprits.

"The government should first identify the criminals and then take effective measures to punish them," he said. "Only then, the government may start the merger process."

The former BIBM DG, however, predicted that the two poor-performing banks would not be able to bring any fruitful result out of the planned merger.

An analysis on the financial data for the last five calendar years, it was found that the health of BDBL was better than that of the BASIC Bank. But both the banks were struggling with huge volume of classified loans.

The net loss of the BASIC Bank deepened further in the last two years. The deposits, excluding the inter-bank transactions, increased slightly in 2020 while the advances, excluding inter-bank transactions, dropped.

The net loss of the BASIC Bank stood at Tk 3.66 billion in 2020, deteriorating from Tk 3.27billion a year ago. It was Tk 3.54 billion in 2018.

The BASIC Bank's deposits rose to Tk 143.04 billion in 2020 from Tk 141.65 billion a year before while the advances came down to Tk 151.66 billion from Tk 153.35 billion, according to the central bank's statistics.

Besides, the tier-1 capital, generally known as core capital, of the BASIC Bank has already entered into the negative territory, which indicates lower shock-absorbing capacity of the public bank.

Normally, the tier-1 capital is used for absorbing shocks against losses of any bank or financial institution.

The share of non-performing loans (NPLs) in the total outstanding loans of the state-owned commercial bank (SoCB) stood at 51.13 per cent.

The classified loans of the SoCB cover substandard, doubtful and bad/loss portions of total outstanding credit, which stood at Tk 146.74 billion on December 31 last. The amount was Tk 149.40 billion in 2019.

On the other hand, net profit of the BDBL maintained a declining trend in the last two years, but the advances, excluding inter-bank transactions, increased in 2020 while deposits, excluding inter-bank transactions, fell significantly. The bank had no provisioning shortfall and it had capital surplus of over Tk.6.0 billion at the end of last year.

Net profit of the BDBL fell to Tk 45 million in 2020 from Tk 66 million of the previous year. It was Tk 749 million in 2018.

The amount of deposits of the BDBL fell to Tk 25.05 billion in 2020 from Tk 28.87 billion a year ago while the volume of advances rose to Tk 21.29 billion from Tk 19. 61billion.

The share of default loans in the total outstanding credits of the BDBL stood at 33.88 per cent as of December 31 in 2020. It was 50.11 per cent a year before.

The NPLs of the BDBL cover substandard, doubtful and bad/loss portions of total outstanding credit, which in aggregate amount stood at Tk 17.56 billion on December 31 last. The amount was Tk 16.36 billion in 2019.

Both the banks are facing different kinds of problems which are likely to be intensified in the near future because of the ongoing Covid-19 pandemic, the former BB governor predicted.

When contacted, a senior official of the BDBL told the FE that the bank could not increase the amount of deposits in the last year because of the market-based interest rate.

"Besides, a few of the state-owned enterprises (SoEs) have already withdrawn their deposits from the bank in 2020," the banker explained.

When asked about the merger initiative, the BDBL official expressed his pessimism and said: "We're not interested in merging with the BASIC Bank."

However, Md. Anisur Rahman, MD and CEO of BASIC Bank, told the FE: "We'll act in line with the government's instructions."

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