Exim Bank chairman says they have agreed to the merger to safeguard state interests
Published : 16 Mar 2024, 02:34 AM
In the swirling uncertainties of Bangladesh's banking sector, debt scam-ridden Padma Bank is unable to repay depositors, with its accumulated losses climbing close to Tk 10 billion. So, the question arises if a merger with this bank will harm the financial health of the profitable Exim Bank.
Concerns loom over whether the depositors of the Padma Bank will get their money back.
Padma is a conventional bank anyway while Exim follows Shariah, which begs the question: how the diverse banking models of the two entities will be reconciled.
Exim Bank Chairman Nazrul Islam Mazumder said they agreed to the merger because they have a duty to perform for the state. Exim will follow the Bangladesh Bank’s guidelines on the merger, he said.
The boards of directors of the two banks on Thursday decided in principle to merge, leaving only formalities to be done on the central bank’s instructions.
Padma was founded as The Farmers Bank after former home minister Muhiuddin Khan Alamgir secured the licence along with several others in 2013.
Its leadership and the name were changed after most of the loans disbursed by the bank became nonperforming within a few years from its inception.
The government injected Tk 7.29 billion capital into the bank through the Investment Corporation of Bangladesh and state-owned banks in 2019 as a last-ditch effort.
The new management announced possible foreign investment, but all the plans failed. Padma Bank chairman Chowdhury Nafeez Sarafat then left the bank.
Zahid Hussain, former lead economist at the World Bank’s Dhaka office, stated: “It cannot not be said for sure whether the two banks are getting merged or something else will happen until the Bangladesh Bank sets the guidelines for the merger.
“It’ll be clear if this will bring good results once the process is known.”
Abdullah Al Mahmud of Dhaka University’s banking and insurance department sounded optimistic about the merger, but agreed with Zahid that time would be needed to see if the move brings good results.
“We can hope for the better if the strong banks take responsibility for the weak ones. Exim Bank is relatively better than Padma. We’ll need to wait and see if what’s happening now brings success or failure.”
Economist Mustafizur Rahman thinks Bangladesh does not need so many banks, but the government realised it late.
Padma Bank’s accumulated losses crossed Tk 9 billion in 2021. Although last two years’ final accounts are not yet available, the bank lost more than Tk 2.46 billion of its capital in the four years until 2022 after its renaming.
AMALGAMATION OF CONFLICTING POLICIES
Prof Abdullah said the conflicting policies of the two entities would be a big challenge for the merger.
Under the conventional banking system, Padma Bank is operated with fixed interest rates on lending and deposits.
The clients of Shariah-based Exim Bank, on the other hand, share profits through equity participation, which requires a borrower to give the bank a share in their profits rather than paying interest as long as charging or paying interest is forbidden in Islam.
“If the two banks with totally opposite policies get together, the entire structure will change,” said Prof Abdullah.
“It’s a big question how the customers and investors of Exim Bank will take the merger. On another hand, Padma Bank officials don’t have the idea of Shariah-based banking. How will Exim Bank acquire them?”
bdnews24.com asked Exim Chairman Nazrul what will happen with two branches of the banks in the same area, and whether all the Padma Bank officials will retain their jobs.
“Padma Bank’s branches and employees will belong to Exim Bank. The branch names will be changed to Exim Bank,” he said, without detailing what will happen with two branches in the same area.
WILL EXIM BANK BE AFFECTED?
Padma Bank has a capital of Tk 61.41 billion while the loans disbursed by the bank stood over Tk 55 billion, including 36.72 billion or 64 percent non-performing debt.
Exim Bank, with a portfolio of Tk 460 billion, has Tk 20 billion or 4 percent non-performing loan.
Prof Abdullah said Exim Bank’s financial statement will become weaker once it acquires the deposits and loans of Padma. “It’s a big question how they [Exim] will tackle it.”
Asked how they will tackle the situation, Exim Chairman Nazrul, who is close to former Padma chairman Sarafat, said: “All the banks are the state’s assets. They need to be saved for the sake of the state. We’ve decided to perform that duty. That’s the biggest thing.”
Padma Bank is happy with the decision. State-owned Sonali Bank’s Managing Director Afzal Karim, currently working as the chairman of Padma, said: “Exim Bank’s financial health, profits and quality of loans are better than Padma. They [Exim] wanted it [merger] and we’ve agreed.”
WHAT’LL HAPPEN TO PADMA DEPOSITORS?
The capital invested by the state-owned Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank, and the Investment Corporation of Bangladesh in the Padma Bank could not be recovered in five years.
The central bank allowed the managing directors of the banks and the corporation to become directors of the Padma Bank by relaxing the rules.
As the Padma Bank could not repay its depositors, it proposed a merger with any of the state-owned banks.
In another proposal, it said the state-owned banks and the corporation will be issued shares of the Padma Bank.
But the Bangladesh Bank said the second proposal was not consistent with the law.
Many such organisations failed to get their funds back from the Padma Bank.
Asked if Exim will return the funds if the merger is completed, Nazrul skirted a direct reply.
“Everything will be done in line with the Bangladesh Bank’s guidelines and audits.
“Everyone’s interests will be saved after the merger. Padma Bank’s deposits and loans are far less than ours,” he said.
[Writing in English by Osham-ul-Sufian Talukder]