Saturday, 21 December, 2024
The merger process initiated seven months ago to rescue struggling banks as part of financial sector reforms has become uncertain following a sudden change in government, industry experts said.
"The merger aimed to save ailing banks, with Padma Bank and Exim Bank completing their audits and submitting reports to the central bank as part of the requirements. However, the next steps remain unclear, leaving Padma Bank in a precarious situation", a leading bank CEO told THE BANGLADESH EXPRESS..
Since signing the agreement in March, Padma Bank has halted deposit collection and new loan issuance, focusing solely on managing existing loans and daily operations at its branches. The bank's Managing Director, Tarek Riaz Khan, resigned a month after the agreement and has since joined another private bank.
Additionally, Afzal Karim, Managing Director of Sonali Bank and a former member of Padma Bank's board, was removed following the interim government’s appointment. The managing directors of three other state-owned banks—Janata, Agrani, and Rupali—were also vacated, further depleting Padma Bank's board.
“The absence of these four directors has rendered Padma Bank unable to hold board meetings, creating a leadership crisis and leaving employees and customers uncertain about the bank's future”, a top banker told THE BANGLADESH EXPRESS.
In response to a loan scandal and liquidity crisis affecting the financial sector, the central bank launched a merger initiative last December, aiming to consolidate weaker banks with stronger ones.
The former governor, Abdur Rouf Talukder, announced plans to merge ten weak banks with stronger counterparts. The central bank introduced the Prompt Corrective Action (PCA) framework in December, outlining performance targets and penalties, including mergers, for banks failing to meet these standards.
The PCA was scheduled for implementation after reviewing the 2024 financial reports, to identify weak banks by March 2025.
In February, the central bank unveiled a 17-point reform roadmap aimed at reducing non-performing loans, including recommendations for merging weaker banks with stronger ones. Amid these discussions, a sudden announcement in March revealed the merger between the struggling Padma Bank, formerly Farmers Bank, and Shariah-based Exim Bank. Under central bank mediation, both banks signed the merger agreement.
When the merger process was discussed, the central bank stated that commercial banks could merge voluntarily; otherwise, it would intervene after December 2024. In April, the central bank issued guidelines for the voluntary merger of banks and companies, emphasising that the initiative aimed to address the challenges of weaker banks while enhancing the operations of stronger ones to fortify the financial sector and provide better public services.
To incentivise mergers, the central bank offered policy benefits, including exemptions from provisions related to minimum capital reserves and liquidity ratios.
On August 5, following a student-led uprising, the Awami League government fell, leading to the departure of former Prime Minister Sheikh Hasina. An interim government assumed office on the evening of August 8.
After taking power, the new government implemented leadership changes in financial institutions, including the central bank, where Ahsan H Mansur was appointed as the new governor. It also established a task force to reform the financial sector, focusing on banking reforms.
Following Mansur’s appointment, earlier initiatives in the banking sector lost momentum, effectively stalling merger discussions. Plans to assess Padma Bank’s liabilities and assets after audits, intended to establish share prices before Exim Bank’s takeover and the subsequent dissolution of Padma Bank’s name, have been put on hold. Approval from the Securities and Exchange Commission and the High Court remains pending, but the new Exim Bank board has ceased further action.
Nazrul Islam Majumder, who served as chairman of Exim Bank for 17 years under the previous government, has witnessed significant changes in the banking sector since the fall of the Awami League government. The new governor has reshaped the boards of 11 banks, including Exim Bank.
While the former governor, Rouf, had described Exim Bank as a 'good' bank during the merger agreement, the new board’s assessment, four months later, is notably different.
A top banker explained that Exim Bank cannot take on the responsibility of more than sixty branches from Padma Bank. “We are waiting for better times. The bank needs to stabilize first, and only then will we consider the merger with Padma Bank.”
In light of the government change and shifts in banking leadership, Padma Bank remains concerned about the merger’s future. To understand Exim Bank’s position, Padma Bank’s acting managing director, Kazi Md Talha, met with a high official of Exim Bank last week but did not receive a satisfactory response.
“I’ve informed the acting MD of Padma Bank that I cannot make any decisions regarding the merger at this time. It will take time, and we will decide later”, said the top Exim Bank official.
Bangladesh Bank, which has been coordinating the merger of commercial banks, is currently not communicating any updates to the banks involved. Consequently, the merger process remains stalled, heightening the risks for the struggling Padma Bank.
The merger process initiated seven months ago to rescue struggling banks as part of financial sector reforms has become uncertain following the sudden change in government.
On August 5, following a student-led uprising, the Awami League government fell, leading to the departure of former Prime Minister Sheikh Hasina. An interim government assumed office on the evening of August 8.
After taking power, the new government implemented leadership changes in financial institutions, including the central bank, where Ahsan H Mansur was appointed as the new governor. It also established a task force to reform the financial sector, focusing on banking reforms.
Following Mansur’s appointment, earlier initiatives in the banking sector lost momentum, effectively stalling merger discussions. Plans to assess Padma Bank’s liabilities and assets after audits, intended to establish share prices before Exim Bank’s takeover and the subsequent dissolution of Padma Bank’s name, have been put on hold.
Approval from the Securities and Exchange Commission and the High Court remains pending, but the new Exim Bank board has ceased further action.
Nazrul Islam Majumder, who served as chairman of Exim Bank for 17 years under the previous government, has witnessed significant changes in the banking sector since the fall of the Awami League government. The new governor has reshaped the boards of 11 banks, including Exim Bank.
While the former governor, Rouf, had described Exim Bank as a 'good' bank during the merger agreement, the new board’s assessment, four months later, is notably different.
A top banker explained that Exim Bank cannot take on the responsibility of more than sixty branches from Padma Bank. “We are waiting for better times. The bank needs to stabilize first, and only then will we consider the merger with Padma Bank.”
In light of the government change and shifts in banking leadership, Padma Bank remains concerned about the merger’s future. To understand Exim Bank’s position, Padma Bank’s acting managing director, Kazi Md Talha, met with a high official of Exim Bank last week but did not receive a satisfactory response.
“I’ve informed the acting MD of Padma Bank that I cannot make any decisions regarding the merger at this time. It will take time, and we will decide later”, said the top Exim Bank official.
Bangladesh Bank, which has been coordinating the merger of commercial banks, is currently not communicating any updates to the banks involved. Consequently, the merger process remains stalled, heightening the risks for the struggling Padma Bank.
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The merger process initiated seven months ago to rescue struggling banks as part of financial sector reforms has become uncertain following a sudden change in government, industry experts said.
"The merger aimed to save ailing banks, with Padma Bank and Exim Bank completing their audits and submitting reports to the central bank as part of the requirements. However, the next steps remain unclear, leaving Padma Bank in a precarious situation", a leading bank CEO told THE BANGLADESH EXPRESS..
Since signing the agreement in March, Padma Bank has halted deposit collection and new loan issuance, focusing solely on managing existing loans and daily operations at its branches. The bank's Managing Director, Tarek Riaz Khan, resigned a month after the agreement and has since joined another private bank.
Additionally, Afzal Karim, Managing Director of Sonali Bank and a former member of Padma Bank's board, was removed following the interim government’s appointment. The managing directors of three other state-owned banks—Janata, Agrani, and Rupali—were also vacated, further depleting Padma Bank's board.
“The absence of these four directors has rendered Padma Bank unable to hold board meetings, creating a leadership crisis and leaving employees and customers uncertain about the bank's future”, a top banker told THE BANGLADESH EXPRESS.
In response to a loan scandal and liquidity crisis affecting the financial sector, the central bank launched a merger initiative last December, aiming to consolidate weaker banks with stronger ones.
The former governor, Abdur Rouf Talukder, announced plans to merge ten weak banks with stronger counterparts. The central bank introduced the Prompt Corrective Action (PCA) framework in December, outlining performance targets and penalties, including mergers, for banks failing to meet these standards.
The PCA was scheduled for implementation after reviewing the 2024 financial reports, to identify weak banks by March 2025.
In February, the central bank unveiled a 17-point reform roadmap aimed at reducing non-performing loans, including recommendations for merging weaker banks with stronger ones. Amid these discussions, a sudden announcement in March revealed the merger between the struggling Padma Bank, formerly Farmers Bank, and Shariah-based Exim Bank. Under central bank mediation, both banks signed the merger agreement.
When the merger process was discussed, the central bank stated that commercial banks could merge voluntarily; otherwise, it would intervene after December 2024. In April, the central bank issued guidelines for the voluntary merger of banks and companies, emphasising that the initiative aimed to address the challenges of weaker banks while enhancing the operations of stronger ones to fortify the financial sector and provide better public services.
To incentivise mergers, the central bank offered policy benefits, including exemptions from provisions related to minimum capital reserves and liquidity ratios.
On August 5, following a student-led uprising, the Awami League government fell, leading to the departure of former Prime Minister Sheikh Hasina. An interim government assumed office on the evening of August 8.
After taking power, the new government implemented leadership changes in financial institutions, including the central bank, where Ahsan H Mansur was appointed as the new governor. It also established a task force to reform the financial sector, focusing on banking reforms.
Following Mansur’s appointment, earlier initiatives in the banking sector lost momentum, effectively stalling merger discussions. Plans to assess Padma Bank’s liabilities and assets after audits, intended to establish share prices before Exim Bank’s takeover and the subsequent dissolution of Padma Bank’s name, have been put on hold. Approval from the Securities and Exchange Commission and the High Court remains pending, but the new Exim Bank board has ceased further action.
Nazrul Islam Majumder, who served as chairman of Exim Bank for 17 years under the previous government, has witnessed significant changes in the banking sector since the fall of the Awami League government. The new governor has reshaped the boards of 11 banks, including Exim Bank.
While the former governor, Rouf, had described Exim Bank as a 'good' bank during the merger agreement, the new board’s assessment, four months later, is notably different.
A top banker explained that Exim Bank cannot take on the responsibility of more than sixty branches from Padma Bank. “We are waiting for better times. The bank needs to stabilize first, and only then will we consider the merger with Padma Bank.”
In light of the government change and shifts in banking leadership, Padma Bank remains concerned about the merger’s future. To understand Exim Bank’s position, Padma Bank’s acting managing director, Kazi Md Talha, met with a high official of Exim Bank last week but did not receive a satisfactory response.
“I’ve informed the acting MD of Padma Bank that I cannot make any decisions regarding the merger at this time. It will take time, and we will decide later”, said the top Exim Bank official.
Bangladesh Bank, which has been coordinating the merger of commercial banks, is currently not communicating any updates to the banks involved. Consequently, the merger process remains stalled, heightening the risks for the struggling Padma Bank.
The merger process initiated seven months ago to rescue struggling banks as part of financial sector reforms has become uncertain following the sudden change in government.
On August 5, following a student-led uprising, the Awami League government fell, leading to the departure of former Prime Minister Sheikh Hasina. An interim government assumed office on the evening of August 8.
After taking power, the new government implemented leadership changes in financial institutions, including the central bank, where Ahsan H Mansur was appointed as the new governor. It also established a task force to reform the financial sector, focusing on banking reforms.
Following Mansur’s appointment, earlier initiatives in the banking sector lost momentum, effectively stalling merger discussions. Plans to assess Padma Bank’s liabilities and assets after audits, intended to establish share prices before Exim Bank’s takeover and the subsequent dissolution of Padma Bank’s name, have been put on hold.
Approval from the Securities and Exchange Commission and the High Court remains pending, but the new Exim Bank board has ceased further action.
Nazrul Islam Majumder, who served as chairman of Exim Bank for 17 years under the previous government, has witnessed significant changes in the banking sector since the fall of the Awami League government. The new governor has reshaped the boards of 11 banks, including Exim Bank.
While the former governor, Rouf, had described Exim Bank as a 'good' bank during the merger agreement, the new board’s assessment, four months later, is notably different.
A top banker explained that Exim Bank cannot take on the responsibility of more than sixty branches from Padma Bank. “We are waiting for better times. The bank needs to stabilize first, and only then will we consider the merger with Padma Bank.”
In light of the government change and shifts in banking leadership, Padma Bank remains concerned about the merger’s future. To understand Exim Bank’s position, Padma Bank’s acting managing director, Kazi Md Talha, met with a high official of Exim Bank last week but did not receive a satisfactory response.
“I’ve informed the acting MD of Padma Bank that I cannot make any decisions regarding the merger at this time. It will take time, and we will decide later”, said the top Exim Bank official.
Bangladesh Bank, which has been coordinating the merger of commercial banks, is currently not communicating any updates to the banks involved. Consequently, the merger process remains stalled, heightening the risks for the struggling Padma Bank.
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