Padma Bank seeks to merge with state bank

Padma Bank, the erstwhile Farmers Bank, in a letter to the finance ministry recently has sought to be merged with any state bank that fits the bill, in what seems to be a desperate effort to avoid further deterioration of its financial health.

"We have recently received an application from the bank for a merger," ABM Ruhul Azad, additional secretary to the ministry's financial institutions division, told The Daily Star.

"No decision has been taken yet," he said.

The merger plea comes around three years past the government rescuing the lender from collapse in the wake of massive financial irregularities.

Established in 2013 as Farmers Bank, the lending agency had fallen prey to scamsters. A Bangladesh Bank investigation found that more than Tk 3,500 crore was siphoned off between 2013 and 2017.

The bank fell in deep trouble after depositors, which included government agencies, started pulling out their money as allegations of corruption arose against Muhiuddin Khan Alamgir and Md Mahabubul Haque Chisty, the then board chairman and chairman of the audit committee respectively.

Later, the government injected Tk 715 crore in the form of capital by making state financial institutions -- Investment Corporation of Bangladesh, Sonali Bank, Janata Bank, Agrani Bank and Rupali Bank -- owners of 60 per cent of the bank's stakes.

The bank also took on the name Padma Bank.

In the letter sent last month, the bank said it faced a lot of constraints after the start of its new journey, including a severe shortfall of liquidity.

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

However, the bank said the Covid-19 pandemic affected credit growth as well as realisation of non-performing loans, causing losses to rise. "As such, our capital is declining noticeably," read the letter signed by Managing Director Md Ehsan Khasru.

The bank said its advance deposit ratio stood at 94 per cent while non-performing loans at 65 per cent or Tk 3,519 crore as per Bangladesh Bank as of June 2021.

The Covid-19-induced challenges led to operating losses of Tk 120 crore in the first half of 2021. As a result, shareholders' equity declined to Tk 221 crore, down from Tk 332 crore at the end of last year.

If the current trend continues, equity will decline to Tk 100 crore by the end of this year, it said, adding that it could maintain Tk 173 crore as provision against a requirement of Tk 1,645 crore.

Padma Bank said its capital shortfall would amount to Tk 2,100 crore as of June this year.

However, it is essential to increase the bank's capital in order to maintain its normal activities, said the bank.

It said there were two options open: issuance of preferential shares and additional subordinated bonds or mergers and acquisitions.

However, as the first option is time consuming and complex, it called for allowing it to be merged with any state bank, be it Sonali, Janata, Agrani or Rupali Bank.

Alternatively, it urged for considering a merger or acquisition with Bangladesh Development Bank to protect itself from any further collapse in the future.

Contacted over the phone, Padma Bank Chairman Chowdhury Nafeez Sarafat and Managing Director Md Ehsan Khasru did not respond to The Daily Star's request for comment.

A senior BB official said the central bank had earlier taken different measures including restructuring the board and management to strengthen its financial health.

The bank was renamed for an image makeover and as part of efforts to sweep the gross irregularities and loan scams under the carpet. Despite all these, its financial health has not improved, he said.

Padma Bank has failed to show any sign of its financial indicators getting strengthened in recent years, which is why it was trying to get merged with a state lender, said the BB official.