[🇧🇩] Banking System in Bangladesh

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Source : https://thefinancialexpress.com.bd/views/bank-mergers-navigating-challenges-seizing-opportunities

Bank mergers: navigating challenges, seizing opportunities
MD. TOUHIDUL ALAM KHAN
Published :
Apr 08, 2024 22:03
Updated :
Apr 08, 2024 22:03

In the ever-evolving landscape of Bangladesh's financial sector, a profound transformation is underway, driven by strategic mergers guided by the Bangladesh Bank. These mergers represent a pivotal moment, promising to reshape the banking industry's future while addressing pressing challenges. However, beneath their surface lies a complex interplay of factors that demand a comprehensive understanding and strategic navigation.

Think of two banks standing at opposite ends of a spectrum: one embodies strength, stability, and resilience, while the other grapples with weaknesses and vulnerabilities, struggling against the tides of economic uncertainty. As the Bangladesh Bank issues directives for a merger, its aim is clear: to build a unified entity that harnesses the strengths of both while mitigating their weaknesses. This endeavour holds immense promise, but it also poses significant challenges that warrant careful consideration and meticulous planning.

At the heart of bank mergers lies the issue of stability. By integrating weaker banks with their stronger counterparts, the overarching goal is to reinforce the financial sector's foundation, making it more robust and resilient in the face of market volatility. Stronger banks bring to the table a wealth of resources, including robust risk management practices and substantial capital reserves, which serve as a bulwark against systemic risks. However, achieving this stability is contingent upon navigating valuation intricacies and overcoming integration hurdles.

Operational efficiency stands as another cornerstone of bank mergers. Through consolidation, banks aim to streamline their operations, eliminate redundancies, and optimise resource utilisation. This not only translates into cost savings but also fosters a culture of efficiency and innovation within the merged entity. Yet, the path to operational excellence is rife with challenges, particularly concerning the integration of disparate systems, processes, and organizational cultures.

One of the most formidable challenges in bank mergers is cultural integration. Each bank boasts its own unique organisational culture, shaped by its history, values, and operating principles. Merging these distinct cultures requires finesse, empathy, and effective communication to bridge gaps and foster a sense of unity and purpose within the combined entity. Failure to address cultural disparities can lead to internal friction, hampering productivity and eroding employee morale.

Despite the potential benefits, bank mergers inevitably give rise to concerns. Chief among these is the threat of job losses, as mergers often result in workforce rationalisation and redundancies. To allay fears and safeguard employee interests, the Bangladesh Bank has instituted guidelines mandating job security for employees of merged entities for a stipulated period. While this measure provides a degree of reassurance, it also introduces complexities related to organisational culture and performance management.

Regulatory supervision plays a pivotal role in ensuring the integrity and efficacy of bank mergers. Regulatory bodies must enforce compliance with guidelines and regulations governing mergers to safeguard the interests of stakeholders. This entails conducting thorough due diligence assessments to identify potential risks and issues and implementing legal provisions to hold accountable those responsible for past misconduct, including defaulters and unethical bank employees.

As Bangladesh's banking sector undergoes a profound transformation through mergers and acquisitions, it stands at a crossroads, brimming with both challenges and opportunities. By navigating these challenges with foresight, resilience, and strategic planning, the sector can emerge stronger, more resilient, and better equipped to meet the evolving needs of its customers and drive sustainable economic growth.

Md. Touhidul Alam khan is the Managing Director & CEO of National Bank Limited.​

 

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Islamic banks need more investment

Despite the apprehension that the Islamic banking industry in the country has fallen into deep trouble, the industry's overall performance last year indicated a positive trend. Many of the key indicators showed that Islamic banks are still on the right track, although some corrective steps are nece

thefinancialexpress.com.bd

Islamic banks need more investment
ASJADUL KIBRIA
Published :
Apr 06, 2024 22:00
Updated :
Apr 07, 2024 21:55

Illustrative image

Despite the apprehension that the Islamic banking industry in the country has fallen into deep trouble, the industry's overall performance last year indicated a positive trend. Many of the key indicators showed that Islamic banks are still on the right track, although some corrective steps are necessary to boost the customers' confidence further. As one-fourth of the country's banking sector now operates under the Islamic mode of finance, it is essential to keep the industry vibrant.

Last month, Bangladesh Bank released the quarterly report on Islamic Banking in Bangladesh. It showed that at the end of December 2023, Islamic banks represented 25.35 per cent share in deposits and 28.92 per cent share in investments in the total banking industry. The ratio was 25.81 per cent and 29.20 per cent, respectively, at the end of December 2022. However, the marginal decline in the Islamic banks' share in deposits and investments within a year is not so alarming. This is because both the deposits and investments increased by 8.16 per cent and 9.81 per cent, respectively.

Statistics available with the central bank also showed that all exports, imports and remittance mobilisations through the Islamic banking industry increased significantly at the end of 2023 over the same period of 2022. The sector's combined excess liquidity, however, dropped by 13 per cent, showing some weakness in the Islamic banking industry.

It is to be noted that at the end of December 2023, there were ten full-fledged Islamic banks in the country operating with 1,670 branches. In addition, 30 Islamic banking branches of 15 conventional commercial banks and 624 Islamic banking windows of 16 conventional commercial banks also provide Islamic financial services. All these together are considered the country's Islamic banking industry or sector, although the full-fledged 10 Islamic banks' share was more than 92 per cent of the total deposits of the sector and 94 per cent of the investments at the end of last year. These banks earned 99 per cent of the total remittance, though they shared around 81 per cent of the total international trade financing of the Islamic banking industry.

Islami Bank Bangladesh PLC (IBBL), the oldest and leading Islamic and private commercial bank in the country, holds one-third of all Islamic banks' deposits and investments and 40 per cent of remittance earnings. Al-Arafah Islami Bank PLC, however, had one-third of international trade financing at the end of December last year.

Last year, the liquidity crunch in Islamic banks became a serious concern. Five of the ten full-fledged Islamic banks faced persistent liquidity crises and were compelled to seek special liquidity support from the central bank. Many, however, interpreted that these banks were in deep trouble and sought support from Bangladesh Bank. They also argued that internal mismanagement and bad loans have deteriorated the asset quality of some of the Islamic banks, which is reflected in the liquidity crunch. Some even apprehended that depositors have lost confidence, driving massive withdrawals from these banks. All these create panic and misunderstanding about the Islamic banks, further complicating things. Interestingly, all the five Islamic banks regained some liquidity surplus by the end of December signalling the improvement of liquidity situation.

It is, however, important to note that the liquidity support by the central bank to commercial banks from time to time is a regular function. When the money market becomes dry due to higher demand of cash, many commercial banks resort to direct and indirect liquidity support from the central bank.

In Bangladesh, conventional banks must maintain a 13 per cent Statutory Liquidity Ratio (SLR) and a 4 per cent Cash Reserve Ratio (CRR) with Bangladesh Bank. CRR is the portion of total deposits that commercial banks must maintain as cash reserves with the central bank. SLR is the minimum percentage of a bank's net demand and time liabilities that it has to maintain in the form of approved government securities. A conventional bank usually maintains the SLR by investing in treasury bonds with different maturities. The bank may use the bond through repo or reverse-repo mechanism to avail necessary liquidity or cash from Bangladesh Bank when required.

The SLR for the Islamic banks is 5 per cent instead of 13 per cent and CRR is 4 per cent. However, an Islamic bank cannot invest in treasury bonds or other government securities because these instruments are interest bearing ones and not shariah-complaint. There was no eligible investment option for the Islamic banks to maintain the SLR earlier. To overcome the shortcoming, the Bangladesh Government Islamic Investment Bond (BGIIB) was introduced in 2004. Islamic banks can borrow from this fund in case of liquidity shortage, which is mobilised through the selling of the BGIIB securities based on the mudarabah principle. But, the transaction is thin. In 2020, the government introduced the Sukuk, an Islamic bond, which became a vital instrument for Islamic banks to maintain SLR. The total amount of Sukuk issued stood at BDT 180.00 billion till the end of December 2023.

As other commercial banks and financial institutions have also invested in Sukuk, the space for Islamic banks has also been reduced here. This means that even after investing in Sukuk, these banks have idle funds in hand. When demand for cash withdrawal increases, the idle funds are exhausted, and the banks at one stage face a liquidity crunch. The Islamic bank, like the conventional banks, cannot borrow from the call money market as the repayment is subject to interest. In that case, the only option for these banks is to seek the central bank's support.

So, it is necessary to float some more Islamic securities or tools so that the Islamic banks can manage the liquidity efficiently. The latest quarterly report of the central bank, however, claimed: "To make efficient use of excess liquidity of the Islamic banking sector, more innovative Islamic money market and capital market products are introduced. The recent introduction of Sukuk and its huge responses from the investors indicate that it will facilitate smooth liquidity management of Islamic banks which may also help deficit financing of the government budget and promote Islamic capital market in the long run."

In reality, more work is needed as a number of barriers are there to develop well functioning shariah-complaint financial instruments. Five years ago, a study paper titled 'Liquidity Management Instruments for the Islamic Banks in Bangladesh' identified these and outlined a series of recommendations. Many of these are still relevant.​

 

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No more bank merger proposals to be accepted: BB

Breaking News, International News & Multimedia

thedailynewnation.com

No more bank merger proposals to be accepted: BB
16 Apr 2024, 12:00 am
Staff Reporter :

The Bangladesh Bank (BB) has received five merger proposals from banks and now plans not to receive any more applications for the time being before the completion of the initial bids.

The central bank's spokesperson, Mezbaul Haque, said on Monday that the banks set for merger in the immediate future include Rajshahi Krishi Development Bank, Bangladesh Development Bank Limited (BDBL), BASIC Bank Limited, Padma Bank, and National Bank Limited.

However, beyond these institutions, no concrete decisions have been made yet regarding further mergers right now, but negotiations are going on regarding potential future consolidation, he informed.

Earlier on March 12 this year, the spokesperson confirmed in a press conference that banks can merge voluntarily until December this year; otherwise, the central bank will take the decisions for mergers based on performance.

In line with the consolidation efforts, Bangladesh Bank has also issued regulations governing bank mergers.

Banks deemed to be in a weak or precarious financial condition will be compelled to merge if they fail to do so voluntarily in accordance with the central bank's policies.

Under the current proposals, state-run Sonali Bank wants to acquire Bangladesh Development Bank Ltd. (BDBL), and Bangladesh Krishi Bank (BKB) wants to take over Rajshahi Krishi Unnayan Bank (Rakub).

Likewise, private commercial bank City Bank wants to acquire state-run BASIC Bank, while United Commercial Bank plans to buy problematic National Bank, and Shariah-based Exim Bank wants to absorb scam-hit Padma Bank.

BB Executive Director and Spokesperson Md. Mezbaul Haque also highlighted that the managing directors and chairmen of the respective banks had verbally informed the central bank about the planned merger.​

 

[Saif]

BB gets five merger proposals from banks

No new proposal will be accepted before the completion of the five, BB says

www.thedailystar.net

BB gets five merger proposals from banks
No new proposal will be accepted before the completion of the five, BB says

Banks send five merger proposals to BB

The central bank got five merger proposals from banks and now plans not to receive any more applications for the time being before the completion of the initial bids.

Under the five proposals, state-run Sonali Bank wants to acquire Bangladesh Development Bank Ltd (BDBL) and Bangladesh Krishi Bank (BKB) wants to take over Rajshahi Krishi Unnayan Bank (Rakub).

Private commercial City Bank wants to acquire state-run BASIC Bank while United Commercial Bank plans to buy problematic National Bank and Shariah-based Exim Bank wants to absorb scam-hit Padma Bank.

Bangladesh Bank Executive Director and Spokesperson Md Mezbaul Haque told The Daily Star that the managing directors and chairmen of the respective banks had verbally informed the central bank about the planned merger.

"These are voluntary merger proposals and the lenders will apply to the central bank formally after the plan is approved at their board meeting."

"We will work on the five proposals at this moment. We will receive more proposals after completing the merger of the five proposals."

More to follow….​

 

[Saif]

Bangladesh Development Bank to be merged with Sonali Bank

In another plan, the government will merge Rajshahi Krishi Unnayan Bank with Bangladesh Krishi Bank

www.thedailystar.net

Bangladesh Development Bank to be merged with Sonali Bank

In another plan, the government will merge Rajshahi Krishi Unnayan Bank with Bangladesh Krishi Bank

Bangladesh Development Bank Ltd will be merged with Sonali Bank, and Rajshahi Krishi Unnayan Bank will be taken over by Bangladesh Krishi Bank, according to a central bank official.

The primary decision of mergers was taken in a meeting between Bangladesh Bank Governor Abdur Rouf Talukder and managing directors of the respective banks at the BB headquarters yesterday.

The government took the decision in principle and informed the banks about the merger move, the central bank official said, asking not to be named.

Md Afzal Karim, managing director of state-run Sonali Bank, told The Daily Star that a formal decision was yet to be taken about the merger.

He said that primarily the boards of the respective banks will have to approve of the merger.

"Then they will apply to the BB," Karim said, adding that a formal decision on the merger may come soon.​

 

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UCB plans to take over troubled National Bank

United Commercial Bank (UCB) is likely to take over trouble-ridden National Bank Ltd (NBL), according to officials of the lenders.

www.thedailystar.net

UCB plans to take over troubled National Bank

United Commercial Bank (UCB) is likely to take over trouble-ridden National Bank Ltd (NBL), according to officials of the lenders.

The development came from a meeting between top officials of UCB and Bangladesh Bank presided over by Governor Abdur Rouf Talukder today.

UCB Executive Committee Chairman Anisuzzaman Chowdhury and Managing Director and CEO Arif Quadri were present among others at the meeting at the central bank headquarters, according to officials.

UCB expressed its interest in acquiring NBL which suffered Tk 3,285 crore in losses in 2022, the highest in the history of Bangladesh's banking sector, burdened with high default loans.

Default loans accounted for 25 percent of NBL's total loans at the end of 2022.

By contrast, UCB which recorded Tk 402 crore in net profit in 2022, had a 5.99 percent nonperforming loan.

Contacted, a top official of the UCB seeking to remain unnamed, said the lender showed its interest in taking over the NBL as default loans will be taken by an asset management company.

Besides, the central bank will provide policy support if any bank acquires any weak bank voluntarily, the official said, adding that the existing sponsors are unlikely to have any stake in the NBL after valuation.

"NBL is one of the oldest banks. If we take out losses, it has some strengths, including its network to bring in remittances. It also has good export business," the official said.

NBL Chairman Syed Ferhat Anwar who was appointed by the central bank by dissolving the previous board to rescue the bank, said the takeover plan was not final yet.​

 

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Bank Asia plans to acquire Bank Alfalah’s Bangladesh unit

Bank Asia is going to hold a meeting of its board of directors next Sunday and is likely to disclose the mater in detail, a senior official of Bank Asia said.

www.thedailystar.net

Bank Asia plans to acquire Bank Alfalah's Bangladesh unit

Private commercial lender Bank Asia plans to acquire the Bangladesh-based operations of foreign lender Bank Alfalah.

Karachi-based Bank Alfalah disclosed the information to the Pakistan Stock exchange on April 17.

The disclosure said the board of directors of Bank Alfalah Ltd had given approval in-principal for the non-binding indicative offer received from Bank Asia Ltd to acquire the bank's Bangladesh operations, assets and liabilities, subject to compliance with all applicable laws, regulations and obtaining of necessary regulatory approvals.

"We will now seek approval from the State Bank of Pakistan for Bank Asia to commence due diligence on Bank Alfalah, Bangladesh," the bank said in the disclosure.

Contacted, Sohail RK Hussain, managing director of Bank Asia, told The Daily Star that it was ongoing process. "And it is not part of the current discussion of the merger of weak banks with strong banks," he said.

He added that Bank Alfalah's Bangladesh unit was operating smoothly.

Bank Asia is going to hold a meeting of its board of directors next Sunday and is likely to disclose the mater in detail, a senior official of Bank Asia said.​

 

[Saif]

Hurried mergers may prove counterproductive

Has the process of planning bank mergers been truly voluntary?

www.thedailystar.net

Hurried mergers may prove counterproductive
Has the process of planning bank mergers been truly voluntary?

Visual: Star

We are concerned by the way in which Bangladesh Bank has decided to proceed with its plan for bank mergers and acquisitions. As we saw in the case of the planned merger of Shariah-based Exim Bank and struggling Padma Bank, a memorandum of understanding (MoU) was signed even before a detailed guideline on mergers and acquisitions was issued, whereas the sequence of events should have been the other way around. And even after the guideline was issued by BB, it is not being followed properly, according to a report by Prothom Alo.

According to members of these banks, BB itself has directed which bank should merge with whom. During these meetings, the merger decisions were made in some cases in the presence of representatives of the two banks concerned, and in other cases, with representatives of only one bank. Some bank directors have even said that they had found out information about their own bank mergers from newspaper reports. Therefore, although the central bank has assured that mergers would be voluntary, it seems as if the reality is anything but that.

The World Bank had earlier warned that without careful assessment and prudent implementation of procedures to avoid weakening good banks as they acquire bad ones, rapidly implementing bank mergers may further undermine confidence in the sector. That is exactly what seems to be happening, with some bank employees expressing concern regarding the merger proceedings thus far. Moreover, experts have also mentioned the need to bring about systemic changes in the sector—such as regulators ensuring that habitual defaulters no longer get bank loans—without which bank mergers will not be beneficial. In fact, without such changes, good banks might also end up in difficulty.

Even though bank mergers, if properly carried out, would be beneficial, it seems Bangladesh Bank is proceeding with them too hastily. As a result, not everyone seems to be aware of what is going on, and banks are being made party to the mergers not of their own volition. Under the circumstances, BB needs to take a step back and discuss the matter openly with all stakeholders so that confusion and panic do not seep into the sector, further damaging it.​