Will the merger heal ailing banks?

The state of the banking sector in Bangladesh is not good. This is not a topic for gossip in tea stalls; rather, it is a serious issue that requires research to understand how the economy has been gradually weakening due to non-performing loans (NPLs) in the banking sector. Therefore, it is completely misleading to judge the condition of the country's economy based on the current government's performance and to claim that the previous situation was better.

The breakdown of laws and regulations, as well as weaknesses in socio-economic foundations, has caused a major crisis in the country.

Regarding the fragile foundations of the banking system, the Advisors Committee recently approved the merger of five banks: First Security Islami Bank, Global Islami Bank, Social Islami Bank, Union Bank, and Exim Bank. These will be combined into a new entity named United Islami Bank, with an authorised capital of Tk 40,000 crore and a paid-up capital of Tk 35,000 crore. This initiative aims to rescue these banks from collapse through proper funding and management.

The Bangladesh Bank has already decided to appoint administrators to monitor the condition of the newly proposed bank.

Although the bank will be "new" after merging, it will inherit the existing challenges of the previous banks. Recovering the huge defaulted loans is critical, regardless of the bank's new name. Moreover, customer trust in the banking system has been significantly eroded, and rebuilding this trust while ensuring smooth withdrawal mechanisms will be a serious challenge.

The profitability of the bank will largely depend on the disbursement of new loans, which may be difficult for the newly formed bank for several years due to the high NPL ratio. Collecting new deposits and public shares will also be a significant challenge. So, despite the merger, the crisis is not fully resolved.

Kawsik Azad Pronoy

Assistant Vice President

Dutch Bangla Bank PLC.

Corporate Business Division,

Dhaka North Cluster