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What's in a name? The phrase comes from Shakespeare's play, Romeo and Juliet. The name of a thing does not matter as much as its quality.
The Padma Bank, formerly known as Farmers Bank, is a case in point. The third-generation private bank that came into being in 2013 as the Farmers got a new name, Padma Bank, in 2017. The main reason behind renaming was to remove the stigma.
The bank had been on the verge of collapse following irregularities and corruption on a massive scale by the then top notches. Allegations have it that the chairpersons of the bank's board and audit committee had helped siphoning off bank money worth more than Tk 35 billion between 2013 and 2017.
The relevant authorities compromised some rules and practices in their bid to save the sinking bank. The central bank dissolved the board and constituted a new one and the government forced the four state-owned banks and the Investment Corporation of Bangladesh (ICB) to infuse capital worth Tk 7.15 billion.
All these efforts, it seems, have gone down the drain. The bank has been failing to pull itself up despite all the support from the government and the Bangladesh Bank (BB).
The state-owned banks and the ICB have not got a penny as profit from their large investment in the Padma Bank since 2018. Rather, according to media reports, most of their investment is gone since the bank has been in the red all the time.
Now, a new move has been started. The Padma Bank, reportedly, has written to the Ministry of Finance (MoF) requesting the latter to get it merged with a state-owned bank, strong enough to take the load.
The Financial Institutions Division (FID) of the MoF has just received the letter and has taken no action until now.
Yet the state-owned banks, according to a newspaper report, are in a state of discomfort. Not any of them is willing to tie knots with the beleaguered Padma. There are justified reasons for that as the government-owned banks do also have their problems, including the one relating to a sizeable volume of classified loans. The government has to inject funds into these banks as capital replenishment from time to time. In the event of a merger of the Padma with any of these SoBs, the government might face even a bigger problem.
Developments involving the erstwhile Farmers Bank are the obvious manifestations of wrong decisions taken by the government policymakers and inadequate monitoring by the central bank.
Undeniably, the health of the country's banking sector is not sound. Everybody knows it. But necessary reforms to improve the situation have not been there.
The government ignored experts' suggestions and allowed some new private banks during the last decade, mostly under political consideration.
Honesty and integrity are two qualities of sponsors that need to be considered while permitting a new financial institution, be it a bank or a non-banking financial institution (NBFI). It is hard to say that the government or the central bank has been adequately attentive to this issue.
The Padma Bank may not be the last bank to experience the distress. Some more may face an identical situation, only if the central bank takes the trouble of digging deep into the financials of all the banks.