State banks themselves are problem-ridden

Nearly three months after Padma Bank submitted its proposal seeking a merger with any state-owned lender, Bangladesh Bank said that state lenders are now plagued by financial health issues due to excessive defaulted loans.

Besides, the state-owned banks  of Bangladesh are suffering from a capital shortfall, according to the central bank.

The lenders are also feeling the pinch of other shortcomings, including problems that stem from poor operational and management practices.

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

Bangladesh Bank made these remarks in 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 the finance ministry in July for a merger with any state-run bank in a 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 is said to have managed to improve its liquidity status over the following 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 central bank's letter said.

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

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