Analysts have expressed doubts about the merger process as the Bangladesh Bank has largely completed the merger of five banks. They say that merging 5 or 10 banks without addressing the root of the difficulties will not solve the problem. In addition, many in the sector believe that international standards are not being followed in this regard. Therefore, this process will not solve the core problems of the banking sector; rather, it will create new problems. Instead of forcing banks to merge, which has not yielded any significant results in the international arena, they (analysts) recommend ensuring good governance in banks as a whole.
Noted that, a dissatisfaction has been expressed even from the top levels of the interim government with the process being followed by Bangladesh Bank in the name of financing the banks, and the merger process. When several other banks are in a much worse condition than the five banks that have been merged. So, questions have also been raised about the basis on which these banks were forcibly selected for merger.
The analysis shows that after the change of government, various false and exaggerated information about some banks was published by various quarters of the government, which created a kind of frightening situation among depositors about these banks. Therefore, depositors withdrew their deposits from these banks, which put the banks in crisis.
Bangladesh Bank supported these banks by printing money, but it could not clarify its position on what this money was given for.
Bangladesh Bank says that as almost all the work of the merger is complete, it will soon write to the government for funding. The letter will also contain a proposal on the entire process of the merger and the financing strategy, according to relevant sources.
According to the decision of Bangladesh Bank, the initial five banks whose merger has been finalized include Union Bank, First Security Islami Bank, Global Islami Bank, Social Islami Bank, and Exim Bank. Meanwhile, Exim Bank wants to operate separately rather than going through a merger process.
Governor Ahsan H. Mansur recently met with the chairmen of four of the five banks under merger talks, but Exim Bank was not invited.
According to sources at the meeting, this meeting has been held in a series of meetings as a step towards starting the formal process of bank mergers, through which discussions were held on how much money might be needed to merge the banks and what the steps might be.
Bangladesh Bank says the merger may cost around Tk 350 billion. Of this, a financing proposal of Tk 200 billion will be made to the government, and discussions are underway to determine whether the remaining money can be obtained from Bangladesh Bank, development partners, and donor agencies.
Before anything was finalized, Bangladesh Bank Governor Ahsan H. Mansur announced the bank merger in February. Then, in June, the message was officially given for the first time at a meeting with the chairmen and managing directors of the banks. It was said then that this process would be implemented in July. Now it is being said that the process will be finalized in October.
This announcement is causing concern among the officers and employees of the banks concerned, as many officers of these banks have already been dismissed and there are fears that more officers and employees may be dismissed.
There is also a growing tendency among depositors of these banks to withdraw deposits. Some banks are unable to repay their deposits even after borrowing money from the Bangladesh Bank. And one or two banks say that since the announcement of the merger, the pressure on customers to withdraw deposits has been increasing.
In this regard, Exim Bank Chairman Nazrul Islam Swapan told Khaborer Kagoj, "Since Bangladesh Bank announced the merger, the pressure on depositors to withdraw money has increased. They have withdrawn about Tk 300 billion from our bank in the last six months." Any bank would be under pressure if the pressure to withdraw money suddenly increased, he said.
At a recent event on bank mergers, Bangladesh Bank Governor Ahsan H. Mansur said that banks will merge; there is no need to panic about it. The discussion on bank mergers is an ongoing process. In this, deposits will be safe and secure. The government will take responsibility for depositors. It will be officially announced which bank will merge with which.
Meanwhile, economists have expressed skepticism about the Bangladesh Bank merger process, saying that there are disagreements among the banks finalized for merger, and there is no uniform desire to merge. Therefore, there are doubts about whether a forced merger would be successful.
Some economists say that if the government finances bank mergers, the financial pressure on the budget will increase. They say that there are also questions about why the government is spending so much money on bank mergers, when it is unable to allocate sufficient funds to essential sectors like health, education, and social security. Moreover, they believe that despite government funding, if there is no competent leadership and an effective board, the entire plan risks failure.
Zahid Hossain, former chief economist at the World Bank's Dhaka office, told Khaborer Kagoj that if the government accepts the banks for merger, they will initially have to fill their capital shortfall, and it also needs to be decided whether government funding will be provided as a loan or equity.
He said, forming the board and appointing management is also an important part, as the new board will be responsible for appointing the bank's managing director and other staff, as well as implementing the reform program. "The government will provide funding, but the board will have to implement it effectively based on the plan," he added.
Dr. Mustafa K. Mujeri, former chief economist of Bangladesh Bank and executive director of the private research organization Institute for Inclusive Finance and Development, told Khaborer Kagoj that the merger process can only be effective if each participating bank feels it is beneficial for them. But we can see that the Bangladesh Bank is somehow forcing the merger of 5 banks, where not all banks agree. Therefore, if the merger is forced, the benefits will never be achieved.
He said there is no basis for the idea that merging 5 or 10 weak banks will result in a strong bank. "If the banks' core problems are not addressed, merging 50 banks will not be of any use," he added.
"For this, the core problems need to be solved, necessary steps need to be taken, and it needs to be implemented properly," he continued.
He warned about government funding, saying, "If there is no proper planning, it can turn into a waste of government money. Therefore, government funding in the merger process should be realistic, planned, and dependent on the spontaneous cooperation of the participants."
Former CAG and Finance Secretary, Muslim Chowdhury, told Khaborer Kagoj, It is being said that the bank merger will require Tk 350 billion. If the government finances the merger process, the budget deficit will increase, making it unable to spend enough on social security. This means that the overall financial pressure on the government will increase. He also commented that necessary and correct policies must be adopted for this.
*This report, originally published in the Khaborer Kagoj print and online edition, has been rewritten in English by Md Sahadad Hossain*
