Sonali Bank, BDBL Bank sign MoU on merger

It is the second merger since the central bank began accepting proposals

The state-owned Sonali Bank and Bangladesh Bangladesh Development Bank Limited have signed a Memorandum of Understanding to merge in the presence of the governor of Bangladesh Bank.

It is the second merger agreed since the central bank began hearing proposals. It is also the first time the process of the bank merger has been started after the announcement of the full policy.

Previously Padma Bank (formerly Farmers Bank) signed an agreement to merge with the private Shariah-based Exim Bank on Mar 18.

Sonali Bank Limited Chairman Ziaul Hasan Siddiqui and Managing Director Md Afzal Karim, BDBL Chairman Shamima Nargis and Managing Director Habibur Rahman Gazi were present at the MoU signing ceremony held at the central bank on Sunday.

After the signing, Nargis told media workers that only one of BDBL’s four major indicators of bank financial health is not in a good position. However, there is little room for improvement in the index for defaulted loans in the next six months. As a result, the board has decided to merge it.

She noted that the non-performing loan ratio, which was 41 percent a year ago, has been brought down to 34 percent.

"BDBL has three good indicators out of four, there is no provision and capital shortage. Only one is in a slightly weaker position, which is defaulted loans. We have brought it down from 41 percent previously to 34 percent. Among the four indicators in the merger policy, the issue of defaulted loans has been given special importance.''

It will not be possible to bring the rate of non-performing loans down from 34 percent to five, 10 or even 15 percent. It will take five to 10 years for the non-performing loans to be sued and the money recovered.

BDBL is unable to provide the time guarantees made by weak private banks. As there are only 50 branches, it is also not possible to increase the level of deposits too far, Nargis said, "The private banks are guaranteeing they will bring in millions of taka next year. But I cannot give that guarantee because we have few branches - only 50.”

According to her, the amount of defaulted loans is increasing continuously but there is a limit to collection. It is not possible to increase the collection rate much within six months and Bangladesh Bank will not give BDBL five to 10 years to strengthen its financial position. As a result, they decided to merge the two banks, she said.

Sonali Bank Chairman Ziaul Hasan Siddiqui said that Governor Abdur Rauf Talukder had answered many important questions from the BDBL chairman.

"The chairman of BDBL was also here today. She had some questions. The governor gave satisfactory answers to them. "

He said, "Our two banks have two different types of experience. We will make use of them and move forward.”

Asked about this, Nargis said, “I had some concerns and wanted to know about them. Among them was the issue of job security for bank employees. I have been assured by Sonali Bank and the governor in this regard.”

Asked why BDBL had taken such a quick decision if the merger was imposed by the central bank, Nargis said, "Sonali Bank is not completely clean either. They have some problems, and so do we. But Bangladesh Bank knows well who has what problem. Since BDBL is a little weak in bad loans, they [Bangladesh Bank] are thinking of merging Sonali's business.”

It was apparent by the BDBL chairman’s words that the merger had not been at her request.

Nargis retired as senior secretary from the Planning Commission in October 2020. This former bureaucrat said, "On Apr 3, we were called to Bangladesh Bank, the board of Sonali Bank was also there. Then Bangladesh Bank told us about the merger opportunities. Then Sonali Bank chose us. We also saw that if we don't merge now, we will have to go for a forced merger after next December. Since Sonali Bank wants to take us, the board has decided to go for the merger.”

On Apr 8, the board approved the merger proposal of BDBL and Sonali Bank. The managing directors of the two banks also worked the weekend before that to bring the merger proposal to the board.

Like Basic Bank, BDBL employees have written open letters to various government departments urging them not to approve the merger. In this context, Shamima Nargis said, "The boards of the two banks have decided to merge. They looked at the advantages and disadvantages of the decision. The best option available was chosen.''

Afzal Karim said that compared to Sonali Bank, BDBL's loans and deposits are much less. Due to this, Sonali Bank will not be affected too much by the merger.

BDBL employees have no reason to panic, he said. The bank employs about 8,000 people, yet there is a manpower shortage while BDBL has around 600 employees.

They have nothing to fear, he said.

Amid growing bad loans and scams, economists have been saying for long that Bangladesh does not need so many banks. The central bank recently initiated the mergers of troubled banks with strong ones.

A bank will have to absorb accumulated losses and non-performing debts if it acquires a struggling one, but in exchange, it will enjoy special security provisions and other facilities.

The Bangladesh Bank unveiled a set of guidelines for bank mergers last week while also offering policy assistance.

In case of compulsory merger, a tender must be published in newspapers to take over the liabilities and assets of the concerned banks following the decision of the Bangladesh Bank, the guidelines said.

If there is no response to the tender or if the central bank is not satisfied with the capability of the applicant, it can instruct any bank to take responsibility by bringing one or more banks under the scheme.

That means the central bank holds the right to instruct any bank to take over the responsibility of a weak bank. In this case, the bank will take the initiative to merge with any other bank or financial institution after receiving instructions.

In 1972, two financial institutions named 'Bangladesh Shilpa Bank' and 'Bangladesh Shilpa Deb Sanstha' were established for the development of the industrial sector under the orders of the president. The government merged the two institutions in November 2009 as neither institution performed as expected. The new name for the institution was Bangladesh Development Bank Limited or BDBL.

With 1,232 branches, including two abroad, Sonali Bank is the largest commercial bank owned by the state. The bank was formed after independence by merging the National Bank of Pakistan, Bank of Bahawalpur and Premier Bank.