Weak banks to merge with strong lenders in a year

Bangladesh Bank Governor Abdur Rouf Talukder has formally informed the owners of banks that weak lenders will be merged with stronger ones in a year and the banking regulator has got down to working towards it.

The central bank chief communicated it during a meeting with the Bangladesh Association of Banks (BAB), a platform of directors of private commercial banks, at the central bank headquarters yesterday.

Md Nazrul Islam Mazumder, chairman of the BAB, led a delegation from the association during the meeting where BB Policy Adviser Abu Farah Md Nasser, Deputy Governor Nurun Nahar and Spokesperson Md Mezbaul Haque were also present.

The governor said there are two ways of mergers, according to central bank sources.

One of the ways is concerned banks can discuss among themselves and make decisions to merge. The other way is that weak banks will merge with sound financial companies under the Prompt Corrective Action (PCA) framework introduced by the central bank.

The PCA Framework, a procedural guideline for mergers, is scheduled for implementation in March 2025, based on performance and financial indicators as of December 2024.

During the meeting, the BB chief cited India, Malaysia and Japan as successful examples of mergers and acquisitions, said a senior central bank official who attended the meeting.

He said that the governor assured the directors that the merger was not a matter of concerns and it would help both strong and weak banks.

Speaking to reporters after the meeting, Mazumder, also the chairman of Exim Bank, said around 90 percent of banks in Bangladesh are in good shape.

"Only 10 percent of banks have become weak. But there are weak banks in other countries as well."

He said the practice of mergers is well-established in neighbouring countries and Europe, so it is not a bad thing.

"The central bank has started to work for mergers and we have no problem if weak banks merge with stronger ones."

Mazumder, however, admitted that they were initially worried when they came to know about the merger plan through the media.

"The governor answered to our queries well and we understand that no one will be harmed by this. Weak banks will become stronger and good banks will become even better."

BB Spokesperson Md Mezbaul Haque said the central bank has introduced an action plan to reform the banking sector and the merger was mentioned in the plan.

The central bank will formulate a guideline on mergers and acquisitions and this is a worldwide practice, he said.

Last month, the BB governor said that around 40 out of a total of 61 banks in the country were performing well. The remaining were weak and of them, 10 would be merged soon.

He asked managing directors of banks to discuss how to combine the balance sheets of weak banks with sound lenders.