State banks too weak to entertain Padma's merger proposal: BB

Nearly three months after the merger proposal given by Padma Bank, the Bangladesh Bank said financial health of state lenders now faces "several problems" due to the excessive default loans.

In addition, the financial indicators of the state-owned banks are suffering from capital shortfall.

The banks are also feeling pinch from the weakness of other financial indicators including problems stemming from operation and management. 

Against the backdrop, the central bank said that attracting foreign capital would be a good option in order to resolve Padma Bank's capital shortfall.

The BB came up with the remarks at a letter sent to the finance ministry on October 5.

Earlier in September, Padma Bank signed a memorandum of understanding with California-based investment bank DelMorgan & Co to find potential foreign investors.

Padma Bank, erstwhile Farmers Bank, pleaded with the finance ministry in July to merge it with a state-run bank in its desperate effort to avoid further deterioration of its financial health.

In the letter, Padma Bank said it faced a lot of constraints since the start of its new journey in 2019, including a severe shortfall of liquidity.

It said to have managed to improve its liquidity status over the next two years and grow confidence among depositors while continuing the process of regularising default loans in phases.

The bank's operating losses stood at Tk 120 crore in the first half of 2021, resulting from the Covid-19-induced economic slowdown.

The capital shortfall would amount to Tk 2,100 crore as of June this year, the bank said in its letter sent to the finance ministry.  

Finance Minister AHM Mustafa Kamal on September 29 said that the government might allow Padma Bank to merge with a state bank.

"Of course, we may do it," said Kamal while responding to queries from reporters on the day.