WB suggests merger of problem banks

The World Bank (WB) has suggested that the government of Bangladesh merge the problem banks with their better-performing peers.

The global lender also suggested that the country revamp its almost-moribund capital market, said finance minister AHM Mustafa Kamal.

The minister revealed this after a meeting with the Bank at its headquarters here in the USA on Friday (USA local time).

Welcoming the suggestions, Mr Kamal said the government would conduct necessary reforms in the banking sector.

The finance minister is now leading a delegation to the spring meetings of the Breton Woods institutions, where he took part in a discussion on Bangladesh's financial sector, organised jointly by the WB and the International Monetary Fund (IMF).

"They (WB) told us that the number of private sector banks in Bangladesh is too high and the non-performing loans (NPL) in the public sector are higher," Mr Kamal told reporters.

However, the WB said since the public banks have many branches to serve the general people, their troubled loans could be a little higher.

The government needs to operate public banks, even though it requires recapitalisation, the minister said.

"They (WB) have told us to merge the private sector banks, which are not doing well. We are also discussing this matter," Mr Kamal said.

"I have told them the number is not a factor, since we have decided to increase the paid-up capital of the commercial banks to Tk 10 billion. That's why, the weak banks will be offered to merge with the better-performing ones," he noted. "We will amend the rules and regulations, if needed."

"They have given some other suggestions, which we will do for the betterment of the country's commercial banks. We will do all the necessary reforms," Mr Kamal said.

About the merger, the minister said the banks, which are not able to operate in the right way, would be advised to go for unification.

In case of state banks, the minister said the decision would be taken later, but the private banks would be offered to opt for merger.

"If the banks don't agree, Bangladesh Bank will take necessary actions," he said.

The authorities were working on setting up an asset management company to help commercial banks overcome their problems, the minister said.

Noting that the current method of NPL calculation is faulty, the minister said the banks charge compound interest rates and when a client fails to repay the loan, they earmark it as the reserve for doubtful debt.

"It is a loss. But the banks charge income tax on it."

"Now we have assigned some audit firms, which will give us the actual report calculating the NPL properly. We will be able to get the actual situation of NPL in the banks," the minister said adding that the government would go for merger in line with the WB suggestion.

The global lender also suggested that Bangladesh take steps to give new life to its capital market.

When asked, the minister said they would take necessary fiscal measures for reforming the capital market.

Meanwhile, the finance minister said the International Finance Corporation (IFC) agreed to provide more or less US$1.0 billion funds every year for Bangladesh's private sector development from now.

He was meeting the regional vice president of IFC Snezana Stoiljkovic at the World Bank.

The minister also had meetings with executive director (ED) of the World Bank for Bangladesh, Bhutan, India and Sri Lanka Aparna Subramani and the ED of the IMF South Asia Department Dr Subir Gokran.

Mr Kamal also met Queen Maxima of the Netherlands, who is the United Nations secretary general's advocate for inclusive finance for development.

Later, the finance minister took part in a ministerial meeting on SDGs (Sustainable Development Goals), where he sought funds from the developed world to implement the Global Goals.

"It's not possible to achieve the SDGs without financing. We've requested the development partners to assess our requirement for SDG implementation and financing accordingly," he said.

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