🇧🇩 Banking System in Bangladesh (3 Viewers)

[Saif]

Bank mergers: navigating challenges, seizing opportunities
MD. TOUHIDUL ALAM KHAN
Published :
Apr 08, 2024 22:03
Updated :
Apr 08, 2024 22:03



In the ever-evolving landscape of Bangladesh's financial sector, a profound transformation is underway, driven by strategic mergers guided by the Bangladesh Bank. These mergers represent a pivotal moment, promising to reshape the banking industry's future while addressing pressing challenges. However, beneath their surface lies a complex interplay of factors that demand a comprehensive understanding and strategic navigation.

Think of two banks standing at opposite ends of a spectrum: one embodies strength, stability, and resilience, while the other grapples with weaknesses and vulnerabilities, struggling against the tides of economic uncertainty. As the Bangladesh Bank issues directives for a merger, its aim is clear: to build a unified entity that harnesses the strengths of both while mitigating their weaknesses. This endeavour holds immense promise, but it also poses significant challenges that warrant careful consideration and meticulous planning.

At the heart of bank mergers lies the issue of stability. By integrating weaker banks with their stronger counterparts, the overarching goal is to reinforce the financial sector's foundation, making it more robust and resilient in the face of market volatility. Stronger banks bring to the table a wealth of resources, including robust risk management practices and substantial capital reserves, which serve as a bulwark against systemic risks. However, achieving this stability is contingent upon navigating valuation intricacies and overcoming integration hurdles.

Operational efficiency stands as another cornerstone of bank mergers. Through consolidation, banks aim to streamline their operations, eliminate redundancies, and optimise resource utilisation. This not only translates into cost savings but also fosters a culture of efficiency and innovation within the merged entity. Yet, the path to operational excellence is rife with challenges, particularly concerning the integration of disparate systems, processes, and organizational cultures.

One of the most formidable challenges in bank mergers is cultural integration. Each bank boasts its own unique organisational culture, shaped by its history, values, and operating principles. Merging these distinct cultures requires finesse, empathy, and effective communication to bridge gaps and foster a sense of unity and purpose within the combined entity. Failure to address cultural disparities can lead to internal friction, hampering productivity and eroding employee morale.

Despite the potential benefits, bank mergers inevitably give rise to concerns. Chief among these is the threat of job losses, as mergers often result in workforce rationalisation and redundancies. To allay fears and safeguard employee interests, the Bangladesh Bank has instituted guidelines mandating job security for employees of merged entities for a stipulated period. While this measure provides a degree of reassurance, it also introduces complexities related to organisational culture and performance management.

Regulatory supervision plays a pivotal role in ensuring the integrity and efficacy of bank mergers. Regulatory bodies must enforce compliance with guidelines and regulations governing mergers to safeguard the interests of stakeholders. This entails conducting thorough due diligence assessments to identify potential risks and issues and implementing legal provisions to hold accountable those responsible for past misconduct, including defaulters and unethical bank employees.

As Bangladesh's banking sector undergoes a profound transformation through mergers and acquisitions, it stands at a crossroads, brimming with both challenges and opportunities. By navigating these challenges with foresight, resilience, and strategic planning, the sector can emerge stronger, more resilient, and better equipped to meet the evolving needs of its customers and drive sustainable economic growth.

Md. Touhidul Alam khan is the Managing Director & CEO of National Bank Limited.​

 

[Saif]

Islamic banks need more investment

Despite the apprehension that the Islamic banking industry in the country has fallen into deep trouble, the industry's overall performance last year indicated a positive trend. Many of the key indicators showed that Islamic banks are still on the right track, although some corrective steps are nece

thefinancialexpress.com.bd

Islamic banks need more investment
ASJADUL KIBRIA
Published :
Apr 06, 2024 22:00
Updated :
Apr 07, 2024 21:55


Illustrative image

Despite the apprehension that the Islamic banking industry in the country has fallen into deep trouble, the industry's overall performance last year indicated a positive trend. Many of the key indicators showed that Islamic banks are still on the right track, although some corrective steps are necessary to boost the customers' confidence further. As one-fourth of the country's banking sector now operates under the Islamic mode of finance, it is essential to keep the industry vibrant.

Last month, Bangladesh Bank released the quarterly report on Islamic Banking in Bangladesh. It showed that at the end of December 2023, Islamic banks represented 25.35 per cent share in deposits and 28.92 per cent share in investments in the total banking industry. The ratio was 25.81 per cent and 29.20 per cent, respectively, at the end of December 2022. However, the marginal decline in the Islamic banks' share in deposits and investments within a year is not so alarming. This is because both the deposits and investments increased by 8.16 per cent and 9.81 per cent, respectively.

Statistics available with the central bank also showed that all exports, imports and remittance mobilisations through the Islamic banking industry increased significantly at the end of 2023 over the same period of 2022. The sector's combined excess liquidity, however, dropped by 13 per cent, showing some weakness in the Islamic banking industry.

It is to be noted that at the end of December 2023, there were ten full-fledged Islamic banks in the country operating with 1,670 branches. In addition, 30 Islamic banking branches of 15 conventional commercial banks and 624 Islamic banking windows of 16 conventional commercial banks also provide Islamic financial services. All these together are considered the country's Islamic banking industry or sector, although the full-fledged 10 Islamic banks' share was more than 92 per cent of the total deposits of the sector and 94 per cent of the investments at the end of last year. These banks earned 99 per cent of the total remittance, though they shared around 81 per cent of the total international trade financing of the Islamic banking industry.

Islami Bank Bangladesh PLC (IBBL), the oldest and leading Islamic and private commercial bank in the country, holds one-third of all Islamic banks' deposits and investments and 40 per cent of remittance earnings. Al-Arafah Islami Bank PLC, however, had one-third of international trade financing at the end of December last year.

Last year, the liquidity crunch in Islamic banks became a serious concern. Five of the ten full-fledged Islamic banks faced persistent liquidity crises and were compelled to seek special liquidity support from the central bank. Many, however, interpreted that these banks were in deep trouble and sought support from Bangladesh Bank. They also argued that internal mismanagement and bad loans have deteriorated the asset quality of some of the Islamic banks, which is reflected in the liquidity crunch. Some even apprehended that depositors have lost confidence, driving massive withdrawals from these banks. All these create panic and misunderstanding about the Islamic banks, further complicating things. Interestingly, all the five Islamic banks regained some liquidity surplus by the end of December signalling the improvement of liquidity situation.

It is, however, important to note that the liquidity support by the central bank to commercial banks from time to time is a regular function. When the money market becomes dry due to higher demand of cash, many commercial banks resort to direct and indirect liquidity support from the central bank.

In Bangladesh, conventional banks must maintain a 13 per cent Statutory Liquidity Ratio (SLR) and a 4 per cent Cash Reserve Ratio (CRR) with Bangladesh Bank. CRR is the portion of total deposits that commercial banks must maintain as cash reserves with the central bank. SLR is the minimum percentage of a bank's net demand and time liabilities that it has to maintain in the form of approved government securities. A conventional bank usually maintains the SLR by investing in treasury bonds with different maturities. The bank may use the bond through repo or reverse-repo mechanism to avail necessary liquidity or cash from Bangladesh Bank when required.

The SLR for the Islamic banks is 5 per cent instead of 13 per cent and CRR is 4 per cent. However, an Islamic bank cannot invest in treasury bonds or other government securities because these instruments are interest bearing ones and not shariah-complaint. There was no eligible investment option for the Islamic banks to maintain the SLR earlier. To overcome the shortcoming, the Bangladesh Government Islamic Investment Bond (BGIIB) was introduced in 2004. Islamic banks can borrow from this fund in case of liquidity shortage, which is mobilised through the selling of the BGIIB securities based on the mudarabah principle. But, the transaction is thin. In 2020, the government introduced the Sukuk, an Islamic bond, which became a vital instrument for Islamic banks to maintain SLR. The total amount of Sukuk issued stood at BDT 180.00 billion till the end of December 2023.

As other commercial banks and financial institutions have also invested in Sukuk, the space for Islamic banks has also been reduced here. This means that even after investing in Sukuk, these banks have idle funds in hand. When demand for cash withdrawal increases, the idle funds are exhausted, and the banks at one stage face a liquidity crunch. The Islamic bank, like the conventional banks, cannot borrow from the call money market as the repayment is subject to interest. In that case, the only option for these banks is to seek the central bank's support.

So, it is necessary to float some more Islamic securities or tools so that the Islamic banks can manage the liquidity efficiently. The latest quarterly report of the central bank, however, claimed: "To make efficient use of excess liquidity of the Islamic banking sector, more innovative Islamic money market and capital market products are introduced. The recent introduction of Sukuk and its huge responses from the investors indicate that it will facilitate smooth liquidity management of Islamic banks which may also help deficit financing of the government budget and promote Islamic capital market in the long run."

In reality, more work is needed as a number of barriers are there to develop well functioning shariah-complaint financial instruments. Five years ago, a study paper titled 'Liquidity Management Instruments for the Islamic Banks in Bangladesh' identified these and outlined a series of recommendations. Many of these are still relevant.​

 

[Saif]

No more bank merger proposals to be accepted: BB

Breaking News, International News & Multimedia

thedailynewnation.com

No more bank merger proposals to be accepted: BB
16 Apr 2024, 12:00 am
Staff Reporter :

The Bangladesh Bank (BB) has received five merger proposals from banks and now plans not to receive any more applications for the time being before the completion of the initial bids.

The central bank's spokesperson, Mezbaul Haque, said on Monday that the banks set for merger in the immediate future include Rajshahi Krishi Development Bank, Bangladesh Development Bank Limited (BDBL), BASIC Bank Limited, Padma Bank, and National Bank Limited.

However, beyond these institutions, no concrete decisions have been made yet regarding further mergers right now, but negotiations are going on regarding potential future consolidation, he informed.

Earlier on March 12 this year, the spokesperson confirmed in a press conference that banks can merge voluntarily until December this year; otherwise, the central bank will take the decisions for mergers based on performance.

In line with the consolidation efforts, Bangladesh Bank has also issued regulations governing bank mergers.

Banks deemed to be in a weak or precarious financial condition will be compelled to merge if they fail to do so voluntarily in accordance with the central bank's policies.

Under the current proposals, state-run Sonali Bank wants to acquire Bangladesh Development Bank Ltd. (BDBL), and Bangladesh Krishi Bank (BKB) wants to take over Rajshahi Krishi Unnayan Bank (Rakub).

Likewise, private commercial bank City Bank wants to acquire state-run BASIC Bank, while United Commercial Bank plans to buy problematic National Bank, and Shariah-based Exim Bank wants to absorb scam-hit Padma Bank.

BB Executive Director and Spokesperson Md. Mezbaul Haque also highlighted that the managing directors and chairmen of the respective banks had verbally informed the central bank about the planned merger.​

 

[Saif]

BB gets five merger proposals from banks

No new proposal will be accepted before the completion of the five, BB says

www.thedailystar.net

BB gets five merger proposals from banks
No new proposal will be accepted before the completion of the five, BB says


Banks send five merger proposals to BB

The central bank got five merger proposals from banks and now plans not to receive any more applications for the time being before the completion of the initial bids.

Under the five proposals, state-run Sonali Bank wants to acquire Bangladesh Development Bank Ltd (BDBL) and Bangladesh Krishi Bank (BKB) wants to take over Rajshahi Krishi Unnayan Bank (Rakub).

Private commercial City Bank wants to acquire state-run BASIC Bank while United Commercial Bank plans to buy problematic National Bank and Shariah-based Exim Bank wants to absorb scam-hit Padma Bank.

Bangladesh Bank Executive Director and Spokesperson Md Mezbaul Haque told The Daily Star that the managing directors and chairmen of the respective banks had verbally informed the central bank about the planned merger.

"These are voluntary merger proposals and the lenders will apply to the central bank formally after the plan is approved at their board meeting."

"We will work on the five proposals at this moment. We will receive more proposals after completing the merger of the five proposals."

More to follow….​

 

[Saif]

Bangladesh Development Bank to be merged with Sonali Bank

In another plan, the government will merge Rajshahi Krishi Unnayan Bank with Bangladesh Krishi Bank

www.thedailystar.net

Bangladesh Development Bank to be merged with Sonali Bank

In another plan, the government will merge Rajshahi Krishi Unnayan Bank with Bangladesh Krishi Bank



Bangladesh Development Bank Ltd will be merged with Sonali Bank, and Rajshahi Krishi Unnayan Bank will be taken over by Bangladesh Krishi Bank, according to a central bank official.

The primary decision of mergers was taken in a meeting between Bangladesh Bank Governor Abdur Rouf Talukder and managing directors of the respective banks at the BB headquarters yesterday.

The government took the decision in principle and informed the banks about the merger move, the central bank official said, asking not to be named.

Md Afzal Karim, managing director of state-run Sonali Bank, told The Daily Star that a formal decision was yet to be taken about the merger.

He said that primarily the boards of the respective banks will have to approve of the merger.

"Then they will apply to the BB," Karim said, adding that a formal decision on the merger may come soon.​

 

[Saif]

UCB plans to take over troubled National Bank

United Commercial Bank (UCB) is likely to take over trouble-ridden National Bank Ltd (NBL), according to officials of the lenders.

www.thedailystar.net

UCB plans to take over troubled National Bank



United Commercial Bank (UCB) is likely to take over trouble-ridden National Bank Ltd (NBL), according to officials of the lenders.

The development came from a meeting between top officials of UCB and Bangladesh Bank presided over by Governor Abdur Rouf Talukder today.

UCB Executive Committee Chairman Anisuzzaman Chowdhury and Managing Director and CEO Arif Quadri were present among others at the meeting at the central bank headquarters, according to officials.

UCB expressed its interest in acquiring NBL which suffered Tk 3,285 crore in losses in 2022, the highest in the history of Bangladesh's banking sector, burdened with high default loans.

Default loans accounted for 25 percent of NBL's total loans at the end of 2022.

By contrast, UCB which recorded Tk 402 crore in net profit in 2022, had a 5.99 percent nonperforming loan.

Contacted, a top official of the UCB seeking to remain unnamed, said the lender showed its interest in taking over the NBL as default loans will be taken by an asset management company.

Besides, the central bank will provide policy support if any bank acquires any weak bank voluntarily, the official said, adding that the existing sponsors are unlikely to have any stake in the NBL after valuation.

"NBL is one of the oldest banks. If we take out losses, it has some strengths, including its network to bring in remittances. It also has good export business," the official said.

NBL Chairman Syed Ferhat Anwar who was appointed by the central bank by dissolving the previous board to rescue the bank, said the takeover plan was not final yet.​

 

[Saif]

Bank Asia plans to acquire Bank Alfalah’s Bangladesh unit

Bank Asia is going to hold a meeting of its board of directors next Sunday and is likely to disclose the mater in detail, a senior official of Bank Asia said.

www.thedailystar.net

Bank Asia plans to acquire Bank Alfalah's Bangladesh unit



Private commercial lender Bank Asia plans to acquire the Bangladesh-based operations of foreign lender Bank Alfalah.

Karachi-based Bank Alfalah disclosed the information to the Pakistan Stock exchange on April 17.

The disclosure said the board of directors of Bank Alfalah Ltd had given approval in-principal for the non-binding indicative offer received from Bank Asia Ltd to acquire the bank's Bangladesh operations, assets and liabilities, subject to compliance with all applicable laws, regulations and obtaining of necessary regulatory approvals.

"We will now seek approval from the State Bank of Pakistan for Bank Asia to commence due diligence on Bank Alfalah, Bangladesh," the bank said in the disclosure.

Contacted, Sohail RK Hussain, managing director of Bank Asia, told The Daily Star that it was ongoing process. "And it is not part of the current discussion of the merger of weak banks with strong banks," he said.

He added that Bank Alfalah's Bangladesh unit was operating smoothly.

Bank Asia is going to hold a meeting of its board of directors next Sunday and is likely to disclose the mater in detail, a senior official of Bank Asia said.​

 

[Saif]

Hurried mergers may prove counterproductive

Has the process of planning bank mergers been truly voluntary?

www.thedailystar.net

Hurried mergers may prove counterproductive
Has the process of planning bank mergers been truly voluntary?


Visual: Star

We are concerned by the way in which Bangladesh Bank has decided to proceed with its plan for bank mergers and acquisitions. As we saw in the case of the planned merger of Shariah-based Exim Bank and struggling Padma Bank, a memorandum of understanding (MoU) was signed even before a detailed guideline on mergers and acquisitions was issued, whereas the sequence of events should have been the other way around. And even after the guideline was issued by BB, it is not being followed properly, according to a report by Prothom Alo.

According to members of these banks, BB itself has directed which bank should merge with whom. During these meetings, the merger decisions were made in some cases in the presence of representatives of the two banks concerned, and in other cases, with representatives of only one bank. Some bank directors have even said that they had found out information about their own bank mergers from newspaper reports. Therefore, although the central bank has assured that mergers would be voluntary, it seems as if the reality is anything but that.

The World Bank had earlier warned that without careful assessment and prudent implementation of procedures to avoid weakening good banks as they acquire bad ones, rapidly implementing bank mergers may further undermine confidence in the sector. That is exactly what seems to be happening, with some bank employees expressing concern regarding the merger proceedings thus far. Moreover, experts have also mentioned the need to bring about systemic changes in the sector—such as regulators ensuring that habitual defaulters no longer get bank loans—without which bank mergers will not be beneficial. In fact, without such changes, good banks might also end up in difficulty.

Even though bank mergers, if properly carried out, would be beneficial, it seems Bangladesh Bank is proceeding with them too hastily. As a result, not everyone seems to be aware of what is going on, and banks are being made party to the mergers not of their own volition. Under the circumstances, BB needs to take a step back and discuss the matter openly with all stakeholders so that confusion and panic do not seep into the sector, further damaging it.​

 

[Saif]

BASIC Bank officials ‘terrified’ by impending merger

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.

www.thedailystar.net

BASIC Bank officials 'terrified' by impending merger



Officials and employees of state-run BASIC Bank are concerned about their future in the face of an impending merger, they said in a memorandum sent to the Bangladesh Bank governor yesterday.

The employees of the bank submitted the memorandum to the governor's office on Tuesday.

However, Bangladesh Bank governor Abdur Rouf Talukder is now in the US to attend the spring meetings of the International Monetary Fund (IMF) and the World Bank Group (WBG).

About a week earlier, they submitted a separate memorandum in this regard to the finance minister as the scam-hit lender is likely to merge with City Bank, a private commercial bank.

In the memorandum, the officials and employees of BASIC Bank said they are 'terrified' over the merger news and, to avoid uncertainty, urged for a merger with a government bank instead.

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.

Once a well-run state bank, BASIC descended into a hotbed of irregularities after Sheikh Abdul Hye Bacchu was made its chairman in 2009 on political considerations.

On April 8, City Bank agreed to take over BASIC Bank following a meeting between the Bangladesh Bank governor and the managing director and chairman of City Bank.

Bangladesh Bank executive director and spokesperson Md Mezbaul Haque yesterday told journalists that the merger of weak banks with strong ones is a long process requiring several steps before finalisation.

He also informed that the merger process can be cancelled at any stage, in which case both banks will continue operations as usual.

Responding to a query, Haque said although BASIC is government-owned, it is unlike any other state-run bank.

Other state-run banks were formed through the Banks' Nationalization Order but BASIC Bank was not formed the same way, which is why there will be no difficulties in merging it with a private commercial bank, he added.

BB APPOINTS AUDITOR FOR PADMA BANK, EXIM BANK

As part of their merger, Bangladesh Bank has appointed an audit firm to examine Padma Bank and EXIM Bank and find out the actual financial health of these banks.

The audit firm, Rahman-Rahman Huq, was appointed by the central bank recently as a part of the merger plan, Haque said.

He also said the audit firm was instructed to submit its report to the central bank within a fixed period.

EXIM Bank and Padma Bank signed a memorandum of understanding on March 18 to initiate the merger process in the presence of the central bank governor.

Till now, the central bank has received five merger proposals.

These include state-run Sonali Bank's acquisition of Bangladesh Development Bank Ltd and Bangladesh Krishi Bank's takeover of Rajshahi Krishi Unnayan Bank.

Additionally, City Bank, a private commercial lender, wants to acquire state-run BASIC Bank, while another private lender, United Commercial Bank Limited, plans to buy National Bank.

"We will work on the five proposals at this moment. We will receive more proposals after completing the five proposed mergers," Haque said recently.​

 

[Saif]

Basic, National Bank Mergers: People withdrawing money in panic

A recent rush to withdraw money from the BASIC Bank and National Bank is worsening the situation the troubled institutions are facing.

www.thedailystar.net

Basic, National Bank Mergers: People withdrawing money in panic

A recent rush to withdraw money from the BASIC Bank and National Bank is worsening the situation the troubled institutions are facing.

Depositors flocked to branches of the two banks last week following reports that BASIC Bank would soon merge with City Bank and National Bank with UCBL.

On April 18, the management of the state-run BASIC Bank wrote to the Financial Institution Division of the finance ministry, asking for advice on how to cope with the situation.

Officials said almost Tk 2,000 crore was withdrawn from the bank in a couple of days last week.

In June last year, deposits stood at Tk 15,935 crore at BASIC Bank. The amount has now come down to around Tk 12,000 crore, according to data from the bank.

In another letter sent to the finance ministry last week, the bank's management said it wanted the institution to merge with another state-run entity instead of a private one.

Contacted, Abu Md Mofazzal, acting managing director of BASIC Bank, said different government entities chose his bank to deposit money because it was a state-run institution.

The government bodies are now withdrawing their funds because the bank is merging with City Bank, which is private, he said.

Managers of BASIC Bank branches are receiving many phone calls from institutions that want to withdraw their money, Mofazzal said.

"This will ultimately be the government's loss," he said.

In 2014, a central bank investigation found BASIC Bank Chairman Sheikh Abdul Hye Bacchu's involvement in embezzlement of Tk 4,500 crore. This ultimately diminished the bank's financial health from which it is yet to recover.

As of December last year, the bank's bad loans stood at Tk 8,204 crore, which is 64 percent of its total disbursed loans.

On April 16, the officials and employees of the bank submitted a memorandum to the Bangladesh Bank governor, saying that they were worried about their future after hearing about the merger proposal.

National Bank is also struggling to keep up with the horde of clients waiting to withdraw their money.

Amid reports of financial irregularities, Bangladesh Bank in December last year reconstituted National Bank's board of directors.

National Bank Managing Director Touhidul Alam Khan said the sudden rush for withdrawal was a tremendous pressure for the firm.

"We are visiting our branches to talk to depositors and request them not to withdraw their money," he said.

From January to September last year, the bank lost Tk 1,123 crore. In 2022, it lost Tk 357 crore.

The bank's bad loans stood at Tk 12,368 crore which was 28.92 percent of its total disbursed loans, shows BB data.

According to industry insiders, Bangladesh Bank's recent decision to merge different banks has sent a wave of fear among depositors, stakeholders, bankers, and directors.

Ahsan H Mansur, executive director of the Policy Research Institute of Bangladesh, said, "Both the weak and strong banks are likely to face the rush to withdraw deposits. But the central bank and the government must ensure that depositors do not lose their money."

However, Mashrur Arefin, managing director of the City Bank, said people often do not like changes.

There should not be much to worry about if the central bank and the government financially support writing-off impaired assets and operating loss of the weak bank, he said.

He said that if the merger of the two balance-sheets takes place after restructuring of the weak bank, then all fears are unnecessary.​

 

[Saif]

In need of prudent bank merger strategy

Bangladesh Bank has recently unveiled a roadmap for banking sector reform. The roadmap aims at ensuring good governance, maintaining public confidence and eventually promoting stability in the financial sector. The comprehensive plan targets seventeen key issues to resolve, of which eleven are for

thefinancialexpress.com.bd

In need of prudent bank merger strategy
NIRANJAN CHANDRA DEBNATH
Published :
Apr 20, 2024 21:35
Updated :
Apr 20, 2024 21:35



Bangladesh Bank has recently unveiled a roadmap for banking sector reform. The roadmap aims at ensuring good governance, maintaining public confidence and eventually promoting stability in the financial sector. The comprehensive plan targets seventeen key issues to resolve, of which eleven are for recovery of defaulted loans and six for ensuring good governance. Five of the issues are considered specifically significant. They are: (i) reduction of defaulted loans, (ii) prevention of anonymous loans and fraudulent activities, (iii) appointment of competent directors, (iv) appointment of independent directors and (v) consolidation of weak banks through merger. To identify weak banks, Bangladesh Bank has issued a framework known as PCA (prompt Corrective Action). As per the PCA framework banks will be categorised into four groups on the basis of four indicators like Capital Adequacy, Common Equity tier-1capital, Net NPL and Corporate Governance. Besides, the Banking Companies (amendment) Act-2023 added a new section 77(A) giving power to the Bangladesh Bank to merge banks compulsorily.

Failure of a bank leaves diverse impacts and may become too costly for the banking sector and the overall economy of a country. Besides, in democracies, along with economic and social impacts bank failure may have huge political impacts. So, to prevent failure of banks, the regulator and the government around the globe sometimes decide for liquidation or force merger of banks.

The banking sector reform roadmap in its priority has kept merging of weak banks first voluntarily and then forcibly, if required. Bank merger is a common phenomenon and widely used tool for consolidation of bank companies around the globe. Sometimes banks voluntarily agree to merge for attaining synergies, economics of scope and scale, diversification, tax savings and even to survive. The regulatory bodies or the government also direct some banks for merger in view of greater national interest. Besides, sometimes bank merger becomes inevitable when it is too late to identify the decay of a bank or financial institution timely or to cope with national and international financial crisis. Every year a good number of banks are merged in different countries around the globe, some mergers take place voluntarily and some forcibly. During the Asian financial crisis of 1997 many banks and financial institutions of different South Asian countries like Japan, Malaysia, Indonesia, Thailand, Sri Lanka and Pakistan and during American financial crisis in 2008, America merged many of its banks. Even in recent years India merged a good number of banks to ensure stability of the banking sector. In Bangladesh, through nationalisation order, reconstitution programme and directed initiatives many banks were merged, reconstituted and taken over by other banks.

The decision of merging weak banks is definitely a good move but execution of the same is a huge challenge. For making the move effective and successful some points may be taken into active consideration. The concerned authorities need to review/analyse the experiences of previous bank mergers in our country. Review of the performance of the merged banks in India in 2020 may also provide us valuable inputs. Performance appraisals of banks merged in Bangladesh reveal that private sector banks and foreign banks merger achieved satisfactory improvement in their post-merger performance. Most of the key financial indicators of these banks reflected notable development after merger. On the other hand, the state-owned bank merger in our country failed to maintain even pre-merger financial position, let alone make any improvement. At the same time, Indian Public Sector Banks (PSBs) merger in 2020 have attained remarkable improvement in almost all spheres of their operations after merger. The post-merger performance review reveals that almost all the indicators like deposit, advance, NII, and CRAR increased and NPL declined substantially from its earlier state. Only two of many financial indicators like 'other operating income' and 'percentage of maintained provision' plummeted very insignificantly. Indian authority also expects that these merged PSBs will produce more performance improvements in the forthcoming days.

Now we can look into the factors of success of private and foreign banks merger in Bangladesh and success of PSB merger in India vis-à-vis causes of failure of state owned banks' merger in Bangladesh. The key factors identified behind success of merger of private and foreign banks in Bangladesh are-- ensuring good governance and management, removing unnecessary and inefficient manpower, reengineering products and services and adopting huge technological transmission etc. In Indian PSB merger, key principle was merging with the bigger and the stronger. Along with many other factors, the principle of merger with the bigger and the stronger contributed to a large extent towards the success of Indian PSBs mergers. Critical analysis/review of state owned banks merger in Bangladesh revealed absence of these key success factors.

As the roadmap stipulates, weak banks will be merged with strong banks. This is obviously the pre-condition of the success of merger. In doing so, necessary precautions need to be taken so that this does not set any bad precedent in the sector -- with wrongdoers willfully making their respective banks weaker in the hope of merger with strong ones. Alongside continuation of the merger process, it is crucial to ensure strong monitoring and supervision to prevent these apprehended ill motives of banking sector perpetrators. For making the most talked about bank merger move effective and successful, it is also essential to craft a well thought out merger policy first, taking into account international practices, realities of Bangladesh, the secrets of success of private and foreign banks in the country and around the globe vis-a-vis the causes of failure of banks in the country. Simultaneously, assessment of the true health of both transferee and transferor banks, taking appropriate measures for disposal of distressed assets, identifying the incentives to be provided etc are crucial. It is vitally important to identify the culprits responsible for creating anarchy and instability in the banking sector and bring them to justice for their misdeeds; otherwise the move may fail to attain expected result.

Bank merger is a big decision and complex process. If done prudently, it may pay off or it may cause peril if done haphazardly. Choosing the right partner, ensuring efficient management, rationalising manpower, expediting digitisation and ensuring adequate capital are crucial factors for success of bank merger. In executing future merger decisions concerned authorities need to pay due attention to these factors. Finally, the merger strategy of weak banks should be to resolve the problems once and for all.​

 

[Saif]

Banks see slow rebound from liquidity shortages

Cash-strapped banks seem to be slowly bouncing back from liquidity crunch on cash feeding by the central bank that has handed out a record amount to the bankers. The improvement is basically reflected in two key liquidity-measuring indicators -- the volume of excess liquidity in banks and un

thefinancialexpress.com.bd

Banks see slow rebound from liquidity shortages
BB hands out record cash supports to bankers in woes
JUBAIR HASAN
Published :
Apr 26, 2024 00:22
Updated :
Apr 26, 2024 00:22



Cash-strapped banks seem to be slowly bouncing back from liquidity crunch on cash feeding by the central bank that has handed out a record amount to the bankers.

The improvement is basically reflected in two key liquidity-measuring indicators -- the volume of excess liquidity in banks and uninvested cash in vaults. The disposables marked a sharp rise this past February.

Excess liquidity includes various cash and cash-equivalent assets, including treasury bills and bonds, along with cash reserves other than liquid assets while uninvested cash means the credits that are available in the vaults.

According to Bangladesh Bank (BB) statistics, the volume of uninvested excess cash in the banking system had stood down at Tk 116.30 billion by June 2023. The figure plummeted further, reaching Tk 54.30 billion in November 2023 and Tk 51.56 billion in January 2024. Thereafter comes a rebound, the figure rising to Tk 76.43 billion by the end of February last, the data showed.

On the other hand, the excess liquidity in commercial banks was recorded Tk 1.66 trillion in June last year. The volume of the excess liquidity was Tk 1.41 trillion in November, Tk 1.63 trillion in December, 2023 and Tk 1.55 trillion in January this year.

But the figure rose to Tk 1.65 trillion in the following month of February, showing a sign of rebound, according to the BB data.

Seeking anonymity, a BB official told the FE that the liquidity situation in the banking industry started improving after months of tightness because of various policy supports of the central bank.

"The commercial banks have been fully meeting government's domestic bank-borrowing requirement after the central bank's decision skipping 'devolvement' to contain inflation from early this financial year (FY'24) and it put liquidity in banks under immense pressure," he said.

To give a breathing space for the credit-hungry banks, the central banker said, the banking regulator unrelentingly accepts all the fund-requirement appeals from the commercial lenders.

"As a matter of fact, liquidity feeding into the banks keeps rising significantly in recent months, which helps improve the liquidity in banks to a large extent."

According to the BB statistics, the central bank lent liquidity dollops amounting to Tk 633.47 billion in June 2023.

The volume of cash funnelled into the fund-starved banks further swelled to hit Tk 3.45 trillion in November, Tk 3.51 trillion in December and Tk 3.63 trillion in January 2024.

In February, the figure declined slightly, but stood over Tk 3.0 trillion.

Alongside the central bank's increased cash feeding, managing director and chief executive officer of Dhaka Bank Emranul Huq says, the credit demand is still on the downturn as port-import finance and offshore banking finance continue dropping in recent times.

"These could be the factors behind the improvement in two liquidity-measuring indicators," the bank's top executive told the FE correspondent.

Top executive of Jamuna Bank Mirza Elias Uddin Ahmed says the banking sector has enough stock of surplus liquidity. But there are few banks having some inherent problems like growing NPLs which face liquidity crunch as they are not getting credit support from interbank sources.

"So, they desperately need fund from the central bank. Otherwise, the liquidity situation is fine in the industry now," he added.​

 

[Saif]

A perplexing decision by Bangladesh Bank

Who will gain from its restrictions on media access?

www.thedailystar.net

A perplexing decision by Bangladesh Bank
Who will gain from its restrictions on media access?


VISUAL: STAR

The recent restrictions placed on journalists' access to the Bangladesh Bank (BB) have evoked understandable criticism from the journalist community as well as from Transparency International Bangladesh (TIB). It is quite a perplexing decision coming from a public institution which, by definition, is supposed to serve public interests. The media, too, is morally mandated to serve public interests. This it does by disclosing finance and banking related information, including any irregularities allegedly taking place in the sector. Access into Bangladesh Bank is thus crucial for any journalist covering the sector. We are, therefore, quite alarmed that the BB could take such a restrictive measure.

The central bank has reportedly instructed its security management and other departments not to allow journalists to enter its offices. The unprecedented restriction means that journalists covering the economy and finance will not be able to properly cover issues related to the economy. This is a disservice to the public but also to the government, which needs an honest appraisal of what is happening at the BB to make proper and timely interventions. Such reporting is all the more necessary at a time when the financial sector is facing severe challenges, including various irregularities, high inflation, and a dollar crisis that has affected many businesses and consumers.

Thus, journalists covering the economy and financial sector need full and unrestricted access to the Bangladesh Bank in order to get correct and verified information. Bangladesh Bank itself should also want to be accessible so that there is minimal risk of misinformation or rumours being circulated. All this makes its aforementioned decision rather difficult to understand.

The message emanating from such restrictions is not the kind that a democratic government would want to send to the people. It gives off the impression that this is being done to protect the interests of certain powerful quarters that have been playing a major role in the irregularities of the financial sector. We, therefore, urge Bangladesh Bank authorities to remove these restrictions so that journalists can have free access to the central bank as they did before. By exposing anomalies in the financial sector, journalists are upholding the people's right to know and helping the government by providing insights into this crucial sector so that problems are identified and solutions can be developed and applied. Surely this is a win-win system for all parties.​

 

[Saif]

Defaulting by top 3 borrowers could hit bank sector hard

Resilience in Bangladesh’s banking sector could be significantly affected if top three borrowers default on their loans, as outlined in a financial stability assessment report by the Bangladesh Bank...

www.newagebd.net

Defaulting by top 3 borrowers could hit bank sector hard
Staff Correspondent 29 April, 2024, 22:32



| — New Age file photo

Resilience in Bangladesh's banking sector could be significantly affected if top three borrowers default on their loans, as outlined in a financial stability assessment report by the Bangladesh Bank.

The report, covering the July-September quarter of 2023, indicated that such a default would have the most substantial impact on the sector's resilience, followed by a 3 per cent increase in non-performing loans.

For both shock scenarios, Capital to Risk-weighted Assets Ratio of the banking sector would fall below the minimum regulatory requirement of 10 per cent, it said.

A 3-per cent increase in non-performing loans or a default of the top three borrowers is likely to affect the banking sector's resilience significantly. Otherwise, the sector would remain resilient to all adverse shock scenarios.

The said report found a slight deterioration in the banking sector's resilience in terms of maintaining the minimum required CRAR and the number of non-compliant banks.

If the top three borrowers of each bank defaulted, nineteen banks would fail to maintain the minimum required CRAR, the report said.

If NPLs increased by 3 per cent, five banks would fail to maintain the minimum required CRAR.

The report said that among broader risk factors, credit risk remained the major one for the banking sector in terms of its impact on capital adequacy.

At end-September 2023, the CRAR of the banking sector stood at 11.08 per cent, marginally lower than that of the previous quarter.

At end-September 2023, profitability in the banking sector, as measured by return on assets and return on equity, slightly declined to 0.41 per cent and 7.46 per cent respectively from that of 0.43 per cent and 7.88 per cent in the preceding quarter.

During the review quarter, the domestic economy faced a number of challenges, including elevated inflation, a decline in foreign exchange reserves and devaluation of the local currency.

At the end of September 2023, annual average inflation increased to 9.29 per cent, 0.27 percentage points higher than the preceding quarter.

Wage earners' remittance inflow registered a decrease of 11.99 per cent from that of the preceding quarter and stood at $4.91 billion at the end of the review quarter.

At the end of September 2023, the gross foreign exchange reserves stood at $26.91 billion, while it would be $21.06 billion as per BPM6.

The Bangladeshi taka has been experiencing depreciation against the US dollar for several quarters, with the dollar rate reaching Tk 109.97 compared with Tk 105.92 at the end of June 2023.​

 

[Saif]

The concept of a public institution eludes our central bank

BB has recently restricted the journalists’ access for no reason in sight.

www.thedailystar.net

The concept of a public institution eludes our central bank


Illustration: Biplob Chakroborty

In the mid-1980s, military dictator HM Ershad banned BBC's journalistic operations in Bangladesh. In March 2022, the Taliban banned BBC's local language services in Afghanistan. It can thus be theorised that authoritarian rulers simply hate any journalistic investigations because the press is detrimental to their longevity. But for journalists' normal, professional access into a financial institution in Bangladesh to be barred is an untimely absurdity. It raises a question as to whether something is really wrong within Bangladesh Bank (BB) right now, given that the regulator is floundering in the theatrics of mergers and trying to convert rotten apples to fresh oranges by covering up multiple loopholes.

BB has recently restricted the journalists' access for no reason in sight. Of course, BB's policy restlessness in recent months surrounding default loans, the dollar's exchange rates, reserves, remittance, inflation, and mergers have drawn in more criticism than praise from the media. Meanwhile, journalists have been reporting BB's half-baked ideas and erratic steps. They are only doing their job, as they have been for so long. It is their noble duty to report any public or private sector wrongdoings so as to alert the nation. So what's the problem?

The BB governor has attempted to explain the decision as trying to protect some "top secrets" of the central bank. If the so-called top secrets aren't religiously private, he is supposed to share these with the public via the media. People have every right to know such information since the central bank is the regulator of banks which live and thrive on people's money. And the BB is not like police headquarters; it doesn't handle murder cases which may warrant confidentiality. The culprits BB might be dealing with are wilful defaulters who are at the root of plundering the financial sector and thus placing the economy on the cliff's edge. But even these cases shouldn't be kept secret. The BB governor is a custodian of the state's interests, not those of loan defaulters. Being a hundred percent transparent is the first point of his oath.

The culture of central banks addressing journalists has been there since the early 1990s. Economist Alan Blinder, the then vice-chair of the Federal Reserve System, championed the culture of making central banks more accessible for and accountable to the public. His campaign, "Fed listens," has been a paragon of how a central bank must ensure free flow of information. The journalists help establish communication between policymakers and the public. The current Fed chair Jeromee Powell regularly meets with journalists after every policy decision; so does the governor of the Bank of England, Andrew Bailey. The current president of the European Central Bank (ECB), Christine Lagarde, previously the chair and managing director of the International Monetary Fund (IMF), invites the press for question-and-answer sessions quite regularly. The ECB also welcomes public tours to improve the common understanding of how central banks work and what purposes they serve.

The IMF outlines four principles of communication by central banks. It asserts that communication should be clear, candid, and transparent. Second, communication should reach all segments of the population. Third, communication should take place regularly. Fourth, all economic agents should have equal access to the same information. Ben Bernanke, who chaired the Fed and won the economics Nobel Prize, made it clear that central bank governors are public servants, and it is their responsibility to provide the public with as much explanation of their decisions as possible. Former Reserve Bank of India governor Raghuram Rajan faced journalists quite confidently because he understood economics well and didn't fear being dethroned by any tycoon groups. None of those mentioned above resorted to using their spokesmen to justify their stances because the respective governments appointed them knowing that these leaders know how the economy functions and thus can speak for themselves. At any central bank, every information is public information, and hiding anything is equivalent to doing a disservice to the government.

The economy is facing high inflation and reserve depletion. The banking sector in particular is in its most appalling state, requiring constant checkups like a patient in the ICU. In such a situation, journalists are akin to those devices surrounding the patient which work tirelessly to report BB's financial symptoms to the public.

BB needs extensive interactions with journalists more than ever before, because journalists can read the public pulse and communicate with stakeholders efficiently. No other service can replicate the functions which the media carries out for the public. Journalists mustn't be seen as counterparties, nor are they enemies of state interests. BB should rather engage with journalists as well-wishers and counsellors in regards to policy steps. Had BB adopted this practice in early 2022 when the prevailing crises began to surface, the governor would have been regarded as a good policymaker by now. But BB's attitude towards journalists has recently been more bureaucratic than accommodative, and that is doing more harm than good.

Restricting journalists in the secretariat should in no way be a good example that is blindly replicated in an institution like BB or the Bangladesh Securities and Exchange Commission. These bodies deal with citizens' savings and investments and citizens have the right to inquire about what the custodians of their assets are doing with them at any point in time. Thus, preventing journalists from discharging their duties is unconstitutional and demeans the noble objectives of the Bangladesh Bank Order, 1972 which was framed under Bangabandhu's guidance after independence. BB must revise its approach to journalism by following global best practices and thus improving its knowledge base.

Dr Birupaksha Paul is a professor of economics at the State University of New York at Cortland in the US.​

 

[Saif]

Ever piling up NPL is responsible for liquidity crisis of banks: ‘Terrible trio’ cause banks to bleed

Breaking News, International News & Multimedia

thedailynewnation.com

Ever piling up NPL is responsible for liquidity crisis of banks: 'Terrible trio' cause banks to bleed
1 May 2024, 12:00 am




Mega corporates accused of intimidating bankers
Anisur Rahman Khan

The banking sector is reportedly being dominated by three mega companies, which are allegedly mishandling bank assets, leading to a liquidity crisis and other financial irregularities.

Reports suggest that those who oppose the unjust demands of these companies face severe consequences, including humiliation and threats.

Both private and state-owned banks, including Janata, Rupali, Sonali, and Agrani, are grappling with significant liquidity issues. As part of the terms for a $4.7 billion loan from the International Monetary Fund (IMF), the government must reduce defaulted loans in state-owned banks.

Several high-ranking officials in the banking sector, speaking anonymously, have voiced concerns that these companies, with political backing, are exploiting bank assets, causing the sector to deteriorate rapidly.

They lament the lack of support from the central bank in pursuing legal action against these powerful entities.

One senior banker, requesting anonymity, emphasised the necessity of strict enforcement of laws against loan defaulters to enable banks to recover significant amounts of defaulted loans.

Failure to apply these laws rigorously is exacerbating the crisis facing financial institutions, he observed.

According to Bangladesh Bank data released recently, defaulted loans surged to Tk145,633 crore at the end of December 2023 from Tk120,656 crore at the end of December 2022 and Tk103,273 crore in the same period in 2021.

For example, the state-owned Rupali Bank has filed 3,217 cases against defaulted borrowers with the Artha Rin Adalat to recover over Tk 7,103 crore.

According to the Rupali Bank report, the total amount of the bank's default loans stood at Tk10,580 crore at the end of April 2023, and Tk7,103.08 crore of this massive default loan is stuck with 100 big borrowers.

According to multiple sources, the bank bears the burden of lending without proper scrutiny and investing in weak financial institutions to institute loans following its failure to recover the growing number of defaulted loans.

The Rupali Bank was lending to big businesses and individuals randomly but failed to recover loans on time, sources said.

As per data of the Rupali Bank show that Virgo Media (Tk 302.14 crore), Ibrahim Consortium (Tk 283.03 crore),Japan Bangladesh Security Printing and Papers Ltd (Tk 241.62 crore), Messers Prize Club general Trading Ltd (Tk 112.38 crore), Bangladesh Auto Rickshaw Chalak Samaboy Samity Ltd (Tk 42.93 crore), DSL Sweater Ltd (Tk 59.79 crore), Shafiq Steel (Tk 153.13 crore), Mabia Ship Breakers (Tk 151.93 crore), Water Heaven Corporation, Crystal Steel and Ship Breakers Ltd (Tk 147.38 crore), Jaso Allocating (Tk 66.64 crore), ND Grioup (Tk 49.99 crore), Setu International (Tk 39.48 crore), Fahad Garments (Tk 38.65 crore), Mastex Industries Ltd (Tk 34.77 crore), Bangladesh Auto Tempo Porter Cab Somoboy Samity (Tk 31.07 crore), Legacy Footwear (Tk 30.71 crore), Nasrin Zaman Knitwears Ltd (Tk 30 crore) Islam Khan Jute Mills (Tk 21.95 crore), Memory World (Tk 92.13 crore), Benitex Industries Ltd (Tk 379.81 crore), M/S Beautiful Jacket (Tk 140.2 crore) and Messers Dream Knitting (Bd) Ltd (Tk 105 crore) in defaulted loans to Rupali Bank.

Besides, Chattogram-based Nurjahan Group, AA Knit Spin Limited, HR Spinning Mill, Chattogram SA Group, M Rahman Steel, Jaz Spinning, Panna Textile, HZ Agro, Himalaya Paper and Board, Western Engineering, and Chowdhury Leather are also on the list of loan defaulters with Rupali Bank.

"The respective managers in all branches across the country have to submit updated reports regarding cases filed against the loan defaulters every day. The bank authority is very serious about realising the defaulted loans," Md. Shahedur Rahman, General Manager of Rupali Bank, told The New Nation.

Md. Shahedur Rahman, who is also the Rupali Bank board secretary, said that they are continuously operating drives as per the directives of the Board of Directors of the Rupali Bank.

A top banker, preferring anonymity, said that some big companies rescheduled their huge loan payments just to pay a small amount of money.​

 

[Saif]

Stressed loans in banks to remain elevated: Moody’s

The stressed loans in the banking sector of Bangladesh will remain elevated even after the central bank tightened the rules for classification of non-performing loans (NPLs), said Moody’s Investors Service.

www.thedailystar.net

Stressed loans in banks to remain elevated: Moody's

The stressed loans in the banking sector of Bangladesh will remain elevated even after the central bank tightened the rules for classification of non-performing loans (NPLs), said Moody's Investors Service.

Last month, the Bangladesh Bank tightened its definition of overdue installments for fixed-term loans, reversing a relaxation of classification and provisioning rules since April 2019.

Fixed-term loans are currently classified as overdue six months after their expiry date and are subsequently classified as non-performing when overdue for a further three months, implying 270 days past due. Cottage, micro and small credits are classified as NPLs when past due/overdue for six months.

From September 30, a loan will be treated as overdue if an instalment on a term loan is not paid within three months of its due date, while from March 2025 an instalment payment late by even one day will be considered overdue.

The period for classifying past due/overdue loans as NPLs remains unchanged.

"We expect the revised guidelines to increase levels of NPLs and provisions, which will strain banks' profitability in the near term," Moody's said in a report yesterday.

The removal of forbearance measures will push banks to recognise loans to weak borrowers as non-performing in the long term and set aside adequate provisions, a long-term credit positive because it will improve their resilience in times of stress, it said.

The global credit ratings agency, however, expects NPLs to increase by 50 basis points until September 2024.

"We expect stressed loans, including performing loans with modified payment terms, as well as NPLs, to remain elevated."

This is because banks are likely to step up collection efforts on overdue loans to contain higher levels of slippage to non-performing, and may also take advantage of relatively lenient guidelines to restructure overdue loans to contain the impact on profitability.

The revised guidelines are an outcome of the central bank's initiatives related to Bangladesh's programme with the International Monetary Fund to strengthen loan classification and provisioning rules, eliminate forbearance measures and align with global best practices.​

 

[Saif]

A legal perspective

FOR quite a few days, the news of banks and financial institutions merger has created a stir in the banking industry. This merger and acquisition has proved the...

www.newagebd.net

A legal perspective
by Md Badrul Millat Ibne Hannan 05 May, 2024, 00:00


| New Age

FOR quite a few days, the news of banks and financial institutions merger has created a stir in the banking industry. This merger and acquisition has proved the forecasting of economists and experts once again. Economists and experts had strongly opposed the approval of banks on political grounds. Business conglomerates with political clout have taken away these banks because of profit maximisation within a short time and for other reasons.

Experts assume that the banking sector is now on the brink of a disaster. Because the banking sector's total risky loans amounted to Tk 377,922 crore at the end of 2022, this development makes for an abstemious reading of the actual health of this vital sector of the economy. At the end of 2022, the banking sector's non-performing loans stood at Tk 120,649 crore, outstanding rescheduled loans at Tk 212,780 crore, and outstanding written-off loans at Tk 44,493 crore.

In the banking sector of our country, people commemorate the last three mergers and acquisitions, Bangladesh Shilpa Bank and Bangladesh Shilpa Rin Sangstha amalgamated, renaming Bangladesh Development Bank Ltd. It is now suffering from bad loans, which make up 42.46 per cent of its total loans. Here, mergers and acquisitions have failed.

On the other hand, in 2000, Standard Chartered Bank and ANZ Grindlays merged and named StanChat Grindlays Bank; after that, it was renamed Standard Chartered Bangladesh. In 2001, Bank Asia set a massive milestone by acquiring the business operations of the Bank of Nova Scotia (a renowned Canadian bank) in Dhaka, the first of its kind in the banking history of Bangladesh. It again repeated the performance by acquiring the Bangladesh operations of Muslim Commercial Bank Ltd, a renowned Pakistani bank. Although, Bank Asia launched its operations in 1999, it acquired these two banks within two years and pointed out to our eyes that if there is honesty, integrity, and capability, it is possible.

Recently, the Bangladesh Bank has issued a draft guideline for merger offering to the bidder banks, which will also be called transferee banks, to bid for the transferor bank, which is placed under moratorium and decided to be merged with another bank, with incentives including regulatory relaxation regarding minimum capital requirement provisioning, cash reserve ratio and statutory liquidity ratio requirements, liquidity coverage ratio, liquidity support, foreign exchange assistance, the option of Bangladesh Bank buying long-term bonds or debentures from the transferee bank at low rates, issuance of shares to raise capital, permission for subordinated bonds, tax incentives, and goodwill as an asset.

As per the regulatory duties of the central bank, it has categorised the scheduled banks into three categories: sound banks, stable banks, and distressed banks. Before going forward with the merger and acquisition agreement, the following cautions and considerations are to be re-conceived:

Non-performing loans: Merging banks need to carefully assess the non-performing loans of the weaker bank and develop strategies to address them effectively. Failure to address non-performing loans can impact the financial health of the merged entity.

Financial delinquency: Acquiring banks must evaluate the weaker bank's history of financial misconduct and take appropriate measures to mitigate any potential risks associated with such issues.

Employee homogenising: Merging banks need to contemplate the amalgamation of employees from both entities, ensuring a smooth transition and minimising any negative impact on the workforce.

Capital adequacy ratio: The capital adequacy ratio of the merged entity should be carefully assessed to secure compliance with regulatory requirements and maintain financial stability.

Dilution of earnings: Shareholders of the acquiring bank may experience diluted earnings after the merger, which could lead to possible legal issues.

Liquidity and capital management: Merging banks must carefully manage liquidity and capital to secure the smooth functioning of the merged entity and abstain from any adverse effects on customers and stakeholders.

Banking is the backbone of any economy, and the pursuit of mergers and acquisitions within this sector is a common occurrence worldwide. In Bangladesh, the financial sector has experienced a surge in merger and acquisition activities in recent decades, reflecting the industry's dynamic nature and the pursuit of growth and efficiency.

The terms 'merger', 'amalgamation' and 'acquisition' have not been defined under the Companies Act or Companies Rules. The term 'amalgamation', though not defined, is used in the Companies Act. In general, the following statutes are applicable to merger and acquisition transactions in Bangladesh: the Companies Act 1994, Section 228 and 229; the Securities and Exchange Ordinance 1969; the Securities and Exchange Commission Act 1993, (amendment May 1, 2021); the Bangladesh Bank Order 1972; the Bank Companies Act 1991, Section 49, Sub-section 1 (Ga), 76 (1), 77 (Ka), 77 (1), 77 (2), 77 (4), 77 (5), and 77 (16); the Financial Institutions Act 1993, (amendment 2023), Section 50; the Contract Act 1872; the Competition Act 2012; the Labour Act 2006 (amendment 2022); the Foreign Exchange Regulation Act 1947; and the Income Tax Ordinance.

Chronological steps such as proposal for merger, negotiations/bargaining, due diligence for the merger, disclosure and confidentiality, due diligence report submission, shareholders' and creditors' consent, scheme submission to the Bangladesh Bank, draft scheme examination, assets and liabilities valuation, transaction price, Bangladesh Bank approval, High court petition in regards to mergers and acquisitions and submission of certified copy of the High Court order to the Office of the Registrar of Joint Stock Companies And Firms need to be followed for a merger and acquisition completion.

Here are some international accounting standards and international financial reporting standards that are required since international rating agencies consider these standards based on the balance sheet and financial position, which reflect the overall scenario of the country.

International Financial Reporting Standard 3: Business Combination, which states merger and acquisition. IRFS 02: Share-Based Payment, IFRS 05: Non-Current Asset Held for Sale and Discontinued Operations, IFRS 07: Financial Instruments: Disclosure, IRFS 13: Fair Value Measurement, IAS 07: Statement of Cash Flows for Cash Generating Unit from Goodwill Valuation IAS 08: Accounting Policies, Changes in Accounting Estimates, and Errors, IAS 10: Enevts after the Reporting Period, IAS 12: Income Taxes, IAS 16: Property, Plant and Equipment, IAS 32: Financial Instrument: Presentation, IAS 36: Impairment of Assets, IAS 38: Intangible Assets, IAS 40: Investment Property and other related IFRS and IAS (if required).

Except for international financial reporting standards and international accounting standards, mergers and acquisitions will not convey mutual benefits to shareholders, depositors, or public trusts.

The i8nternational financial reporting standards and international accounting standards are a set of accounting rules for public companies with the goal of making company financial statements consistent, transparent, and easily comparable around the world. This helps for auditing, tax purposes, and investing.

As per the financial statements of some banks and financial institutes, the central bank is not fully following IFRS and IAS. As a result, commercial banks in mergers and acquisitions are not bound to follow these global standards in asset revaluation. The stronger banks undergoing mergers and acquisitions are to suck up weaker banks and NBFIs with high non-performing loans. So it is enormously sensitive in asset revaluation.

In this regard, the central bank can dictate the banks to follow the depicted IFRS and IAS. Asset revaluation at current market prices for mergers and acquisitions would create a catastrophic situation. If the current market price is higher than the original cost, there is a revaluation gain, which means the asset value has appreciated. So, to circumvent cataclysm and ensure shareholder and depositor rights, the Bangladesh Bank should fully embrace international standards in financial reporting.

Nevertheless, mergers and acquisitions devoid of IFRS and IAS can lead to difficulty in understanding financial stability when a strong bank proceeds with a weak bank's colossal NPL hardship. Likewise, by not following IFRS and IAS, investors and regulators may be in the dark about banks' health.

In mergers and acquisitions, there are matters of buying and selling, so every asset should be re-evaluated under international standards, which are dissimilar from general profit and loss accounts maintained by banks.​

 

[Saif]

Bangladesh Bank again dissolves National Bank board

The bank’s sponsor director Khalilur Rahman made the new chairman

www.thedailystar.net

Bangladesh Bank again dissolves National Bank board
The bank's sponsor director Khalilur Rahman made the new chairman



Bangladesh Bank has once again dissolved the board of National Bank.

Today, the central bank informed the managing director of National Bank through a letter about the cancellation of the bank's existing board of directors.

The banking regulator also formed a new board of directors and set the bank's sponsor director Khalilur Rahman as the new chairman, the BB letter read.

Earlier on December 21 in 2023, the central bank issued an order to dissolve the then board of National Bank and formed a new board.

The banking regulator then made Syed Ferhat Anwar, a former professor of the Institute of Business Administration under Dhaka University, the new chairman of the bank.

The central bank then took the move after Parveen Haque Sikder, a director of the commercial bank, wrote to the Bangladesh Securities and Exchange Commission as she fears that the then board may manipulate the next election of the bank's board of directors.

This time, the banking watchdog removed most of the previous directors, including Syed Ferhat Anwar and Parveen Haque Sikder.​

 

[Saif]

Banks bag windfall from record interest spread

Interest calculating in SMART formula comes as a boon for banking as banks bag windfalls from a record spread between the rates they provide to depositors and take from borrowers. Officials and bankers have said Bangladesh Bank's monetary-policy shift from monetary targeting to interest-rate targe

thefinancialexpress.com.bd

Banks bag windfall from record interest spread
Spread between lending, deposit rates 5.11pc in March
JUBAIR HASAN
Published :
May 06, 2024 00:40
Updated :
May 06, 2024 00:40



Interest calculating in SMART formula comes as a boon for banking as banks bag windfalls from a record spread between the rates they provide to depositors and take from borrowers.

Officials and bankers have said Bangladesh Bank's monetary-policy shift from monetary targeting to interest-rate targeting pays off for the country's commercial banks as they saw the widest spread in over nine years to March last.

Such leap between the difference of weighted average deposit and lending rates - called spread in banking parlance - gives some sort of respite to the banks which had witnessed their core incomes squeezing since the imposition of 9.0-percent lending cap in April 2020, according to sector-insiders.

According to data with the central bank, the weighted average spread rose to 5.11 per cent in March, up by 7 basis points from February's 5.04 per cent.

The official data showed the March spread figure as the highest probably since November 2014 when it was 5.12 per cent.

Seeking anonymity, a BB official said the spread started rising in July 2023 when the central bank introduced interest rate-related benchmark rate called SMART.

Now it rose to 5.11 per cent in March last as weighted average rates of deposits and lending were 5.20 per cent and 10.31 per cent respectively, according to the official.

The difference between lending and deposit rates was only 2.93 per cent in June last year before the SMART came into effect on the money market. Afterwards, it started increasing with the figure rising to 3.29 per cent, 3.33 per cent, 3.31 per cent, 3.34 per cent, 3.35 per cent, 4.66 per cent and 4.83 per cent in July, August, September, October, November and December in 2023 and January in 2024 respectively.

Managing director and chief executive officer of Mutual Trust Bank (MTB) Limited Syed Mahbubur Rahman says the banks have raised both deposit and lending rates in line with SMART rating paradigm, which is reflected in the spread situation.

Managing director and chief executive officer of Dhaka Bank Emranul Huq observes that the lending rate in banks keeps rising quickly because of significant increase in SMART rate every month since its introduction.

The deposit rate offered by the banks is also rising but the depositors get the gains once the tenure matures. On the other hand, the banks can charge increased rate from the fresh borrowers each month.

"That's why the spread is widening fast," the experienced banker says about the interest arithmetic.

Seeking anonymity, a top executive of a private bank said getting formal credits becomes extremely expensive, which is lessening the fund demands on the market.

On the other hand, there are banks having liquidity dearth in the existing contractionary monetary regime and they require credits to improve their balance sheet and offer higher rates to allure the depositors, he said.

"It means the difference between the weighted average rates of deposit and lending would come down in the coming few months," the banker hopes.​

 

[Saif]

A former governor’s unpleasant truths about the banking sector

Economists are always noted for telling unpleasant truths because they go by numbers, research, theory, and judgement. Rarely do politicians—who can manufacture arguments to suit their purpose—endorse economists who are objective. Former Bangladesh Bank Governor Dr Mohammad Farashuddin has unvei

www.thedailystar.net

A former governor's unpleasant truths about the banking sector


FILE VISUAL: REHNUMA PROSHOON

Economists are always noted for telling unpleasant truths because they go by numbers, research, theory, and judgement. Rarely do politicians—who can manufacture arguments to suit their purpose—endorse economists who are objective. Former Bangladesh Bank Governor Dr Mohammad Farashuddin has unveiled some truths about the country's banking sector where regulations have remarkably been relaxed in recent years. Seldom have we seen such blistering comments coming from a governor in Bangladesh's history. Farashuddin's statement, though commendable at a critical moment, creates enormous doubt over whether the government will really pay any attention to it.

The doubt is genuine because the looters are quite well-known to all of us, and they are flocking around the people in power. Not only have they indulged in misdeeds, but they are extravagantly empowered with high positions as well. To the bad luck of the nation, these people have been masquerading as the "true saviours" of the financial industry, if not that of the whole nation. These wolves in sheep's clothing, if not checked, will bring an economy of otherwise high potential down.

It would be a mistake for politicians to label Farashuddin as a supporter of the opposition. He was very well liked by Bangabandhu, who appointed him as his personal secretary. The Awami League government appointed him as governor of the central bank after coming to power in 1996. And most importantly, his performance at the helm of the central bank was academically sound and professionally pro-business.

Few retired bureaucrat-turned governors could do what he did. Dr Farashuddin remained committed to economic knowledge and the country's interest, not the interest of the wilful defaulters whose businesses always pretend to be in the red despite the economy's respectable growth. Sadly, growth is showing signs of a premature slowdown, justifying the clamours of economists who advocate bringing a semblance of law and ethics into business.

The great 18th-century economist Adam Smith once wrote, "Little else is requisite to carry a state to the highest degree of opulence from the lowest barbarism but peace, easy taxes, and a tolerable administration of justice." Smith was so sure about his articulation that he asserted that all the rest would be brought about by the natural course of things once justice is safeguarded. The history of all developed countries has evidently proven that organised financial corruption and economic prosperity can never be siblings. They are mutually exclusive and many politicians in power seem to have brushed the trade-off aside for a game of personal wealth-making and very short-term interest.

Farashuddin's worry in this regard is quite explicit although he seems to be afraid of being mistreated if he speaks against the financial hooligans pampered by power. He literarily resorted to the poignant lines of Rabindranath Tagore—Morite chahina ami sundoro bhubone (I don't want to die in this beautiful world). So subtle was his sense of melancholy and humour.

The truth hidden under his humour points out that if high-scale bank looters are pardoned so easily, the banking sector's future must be cancerous, suggesting the emergence of further plunderers under the political coddling of the regime. His warning rightly echoes that of Dr Wahiduddin Mahmud, former economic adviser to the caretaker government, who allegorically labels the default culture as the rotten heart of the nation.

Some critics have recently labelled Dr Farashuddin's outburst at the seminar of the Economic Reporters' Forum (ERF) as his personal frustration for not being placed in a policymaking position by the regime. This is a defective interpretation of Farashuddin's standpoint. First, we need to judge whether he is statistically right about what he has said. Second, we need to check whether his recommendations don't serve him personally or his business. We get a "yes" in response to both these questions. His concern is that the family-based directorship proposal was passed at parliament without any resolution or debate. In fact, this law has turned many private banks into a mudir dokan—the single family-run petty shops sprawling in villages, fostering a perverse move of private banks from corporate structures to family dynasties.

The sneaky way of passing this family directorship law is the antithesis to the spirit of parliamentary democracy where we hope to see debates over economic policymaking. But there are many members of parliament who never utter a single word about anything during their tenure, while most of them are familiar with the art of accumulating personal wealth at magical speed. Thus, simply addressing the banking sector won't solve the current economic predicament. Parliament and the legal system must function better to make the economy as robust as it was before the pandemic.

Farashuddin is correct in pronouncing that some groups of people are taking bigger slices of the pizza—which we earned through independence. And hence, he is against the trend that brings more retired bureaucrats to politics. It will dampen the quality of bureaucratic services as we have already degraded the quality of our universities by infusing political enthusiasm. He is right in reiterating the unholy triangle of tax dodgers, bank defaulters, and money launderers. They are the same group of people who are dragging the economy to the cliff's edge, and waiting for the time to fly overseas with their trafficked fortunes.

This must be stopped for the sake of the nation where income inequality has been on an unbroken crescendo of unsustainability, defying any sensible records of peer nations. Putting a farmer in jail for defaulting on loans by Tk 1,000, while letting a bank looter sit beside government officials, signal a cancerous future for the financial industry, and Farashuddin's artistic portrayal of the injustice and asymmetry in this regard warrants serious attention from the government.

Dr Birupaksha Paul is professor of economics at the State University of New York at Cortland in the US.​

 

[Saif]

https://thefinancialexpress.com.bd/economy/bangladesh/poor-banking-sector-malgovernance-impunity-key-factors-says-dr-salehuddin

Poor banking sector: Malgovernance, impunity key factors, says Dr Salehuddin
FE REPORT
Published :
May 09, 2024 10:24
Updated :
May 09, 2024 10:24




Malgovernance and improper management, fuelled by political interventions, are the factors behind the present sorry state of the banking sector of Bangladesh, a former central bank governor has said.

A culture of impunity and undue benefits to loan defaulters and their allies in banks are also liable for this situation, according to Dr Salehuddin Ahmed.

"Governance and management failures are in place, because of which we see problems like corruption, money laundering and (loan) defaults."

Dr Ahmed made the observations at a public lecture on the country's banking sector at United International University (UIU) in Dhaka.

The UIU School of Business and Economics hosted the session as part of a public lecture series styled 'Bangladesh Corpus 2024'.

The noted economist gave a brief outline of the sector, which has become much vibrant after 2006 with the rise of digitalisation, use of information technology and many other tools.

Necessary guidelines, norms and laws are there for the banking sector, but it largely lacks compliance of conventional rules, according to him.

About the recent merger of banks, Dr Ahmed said the merger of the banks has not been directed by the Bangladesh Bank (BB) in a proper way.

"Actually, there is scope to restore weaker banks through setting proficient boards, employing independent directors and hiring right professionals."

Highlighting policy failure with default-loan regulations with improper mechanisms to reschedule and restructure them, thereby fuelling corruption, he said borrowing has become a business model at present.

"Borrowing, increasing your money, making foreign trips and defaulting on loans has become a smart business model now," he went on to say.

With only a 2.0-per cent repayment, one can become a free man now, according to the former BB governor.

"The central bank is giving concessions day by day, whereas nobody is paying back."

Even the board of directors at most private banks are not competent, they sit there and provide loans without following the norms, says Dr Ahmed.

He suggested that the Bank Company Act be amended be amended to minimise the scope for incompetent directorships. Suggesting a way forward for the banking sector, the former governor said the central bank should focus more on ensuring governance to reinstate the sector.​

 

[Saif]

Bank sector battered by people with political clouts: economists

Bangladesh’s banking sector has suffered a serious setback over the years, as people having political clouts received from banks various benefits beyond legal scopes, economists said...

www.newagebd.net

Bank sector battered by people with political clouts: economists
Staff Correspondent 16 May, 2024, 22:49


Former Bangladesh Bank governor Mohammed Farashuddin speaks at a programme at the Bangladesh Institute of Development Studies office in the capital Dhaka on Thursday. Economic Research Group chairman Wahiduddin Mahmud, prime minister's economic affairs adviser Mashiur Rahman, East West University vice-chancellor Shams Rahman and BIDS director general Binayak Sen were present. | — Press release

Bangladesh's banking sector has suffered a serious setback over the years, as people having political clouts received from banks various benefits beyond legal scopes, economists said.

At a programme at the Bangladesh Institute of Development Studies office in the capital Dhaka on Thursday to launch a book titled 'Bangladesh's Future Development: Agenda for Reform', they said that widespread political influences in the financial sector caused lack of governance and deviation from principles.

The BIDS and the East West University organised the launching ceremony of the book written by former Bangladesh Bank governor Mohammed Farashuddin.

At the event, Wahiduddin Mahmud, chairman of the Economic Research Group, observed that governments assuming power without fair elections often resort to patronage politics, granting undue benefits to influential groups in an attempt to establish control over society.

He said that the undue benefits to the influential quarter affected honest entrepreneurs and damaged business environment in the country.

There are key sectors in the country that the government should shield them from political interferences, Wahiduddin said.

'The current regime is an authoritarian government cloaked in a formal democratic framework,' Wahiduddin said, adding that assessing its popularity was complicated due to the absence of fair electoral processes.

He also emphasised that democratic rights, freedom of expression and human rights are crucial for the economic development of a nation.

There is no instance in the world where a country achieved economic development solely through infrastructure development without investing in human capital, Wahiduddin said.

Farashuddin suggested a three-year economic reform programme for the banking sector, saying that defaulted loans affected economy severely.

Criticising the practice of loan rescheduling, he remarked that top bank defaulters were receiving preferential treatment.

Farashuddin observed that loan defaulting, tax evasion and money laundering are all interrelated, often involving the same powerful group in these activities.

He also suggested political and constitutional reforms to ensure economic reforms in the country.

He expressed concern that political leaders often desire economists to serve as their subordinates, which should not be the case.

Instead, political leaders should make decisions based on recommendations from economists, Farashuddin said.

According to the economist, maintaining the taka's exchange rate artificially high for a decade, imposing a cap on interest rates for over two years, and having multiple exchange rates severely affected the economy, and recovery would take a considerable amount of time.

Centre for Policy Dialogue executive director Fahmida Khatun said that political influence made the country's banking sector weak.

The nation is now grappling with the consequences of poor governance in the financial sector, a situation that did not arise overnight, she said.

Fahmida pointed out that prioritising investment solely in infrastructure, while overlooking allocations for education and public health, has created an imbalance in the country.

She emphasised that such lopsided development would not be sustainable.

Prime minister's economic affairs adviser Mashiur Rahman, East West University vice-chancellor Shams Rahman, BIDS director general Binayak Sen, economist MM Akash and BIDS research director Kazi Iqbal, among others, spoke at the event.​

 

[Saif]

Chinese consortium seeks digital banking licence in BD

A group of Chinese nationals, in collaboration with Bangladeshi partners, has applied for a digital bank licence in Bangladesh, according to documents of the Chinese Embassy in Dhaka. The consortium submitted the application to the Bangladesh Bank under the name China Bangla Bank Plc. As a joint

thefinancialexpress.com.bd

Chinese consortium seeks digital banking licence in BD
REZAUL KARIM
Published :
May 18, 2024 00:16
Updated :
May 18, 2024 00:16



A group of Chinese nationals, in collaboration with Bangladeshi partners, has applied for a digital bank licence in Bangladesh, according to documents of the Chinese Embassy in Dhaka.

The consortium submitted the application to the Bangladesh Bank under the name China Bangla Bank Plc.

As a joint venture, China Bangla Bank Plc has pledged an initial investment of approximately $10 million, with a further commitment of $200 million over five years, show the papers.

The embassy expects the venture to generate over 7,000 jobs in Bangladesh.

The infusion of Chinese technical expertise and technology investment will indirectly enhance financial inclusion for marginalised communities. This aligns with the bank's goal of extending banking services to over 75 million under-served individuals, according to the documents.

The China Council for the Promotion of International Trade Guangdong Committee (CCPIT Guangdong Committee) recently contacted the Economic and Commercial Office of the Chinese Embassy in Bangladesh to initiate communication with relevant Bangladeshi agencies regarding the application.

A high-powered team of the Bangladesh Bank previously visited China, where the issue of digital banking operations by Chinese entrepreneurs was discussed, a source said.

When contacted, Bangladesh China Chamber of Commerce and Industry Secretary General Al Mamun Mridha said Bangladesh has made significant strides in digital adoption in recent years. For this, there is no alternative to digital banking.

He added that digital banking offers greater convenience, security and ease of transferring funds compared to existing banking services.

Mr. Mridha claimed that China's experience in digital technologies would be beneficial for Bangladesh's digital banking sector if Chinese investors were involved.

The Bangladesh Bank has already granted initial approval to eight digital banks to meet customer needs in the digital age and serve the unbanked population.

Unlike traditional banks, they will operate solely online with a central headquarters and no physical branches.

Digital banking allows customers to conduct banking transactions and access services remotely, via a website or mobile app, without needing to visit a physical branch.

Two new digital banks, Nagad Digital Bank PLC and Kori Digital Bank PLC, have already received letters of intent (LoI) and are preparing to launch operations soon.

The central bank will monitor their performance over the next six months, a central bank source said.

The letter of intent outlines a timeframe for the digital banks to develop their infrastructure under central bank supervision.

Three other banks -- Smart Digital Bank PLC, North East Digital Bank PLC and Japan-Bangladesh Digital Bank PLC -- will receive their letters of intent after six months, based on the performance of the initial two.

The Bangladesh Bank has also approved three existing banks to offer digital banking services: BRAC Bank with bKash, DG-10, a consortium of 10 private commercial banks, and Digital Bank PLC led by Bank Asia.​