🇧🇩 Banking System in Bangladesh (1 Viewer)

[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.​