Commercial banks having comparatively decent looks in balance sheet are in search of small-scale weak banks for amalgamation to avert possible forced merger that may entail higher risks, sources said.
Such a new equation in the banking industry has emerged after Bangladesh Bank, the country's central bank, asked the banks to go for voluntary mergers by choosing their potential partners on their own before this calendar year ends in order to skip the forced-merger step taken by the BB as part of financial-sector reform recipe.
According to bankers, merging with low-size weak banks means low risks as such minnows have comparatively lower administration costs, NPLs or non-performing loans and other costs while the recent BB-touted guidelines on merger issues make it clear that the board members of the weak banks will not be a part of the board of directors in the strong banks after the amalgamation.
As a matter of fact, the managements of the banking biggies maintaining decent balance sheets started knocking managements of the relatively weaker banks as their potential partners to avert the burden of taking over weak banks sinking with large networks and NPL volumes in the form of forced merger by the central bank, according to them.
Seeking anonymity, a BB official says, "The demand of weak banks, particularly small in size, has gone up on the mergers market as small banks have comparatively lesser risks."
If the banks do not go for voluntary mergers, he alerts, the BB will start initiate forced merger, if necessary, considering the situation of the banks after March next year. "So, taking small- troubling banks would be some sorts of relief for the good banks."
"Look at the developments on the mergers market, people will see the high demand of the small banks," the central banker says about the bustle created by the cleanup drive in the wake of reported fiascos in few cases in the banking sector.
EXIM Bank has kick-started the process of mergers and acquisitions with last month's takeover of Padma Bank, which is small in terms of network, manpower, deposit-and- advances portfolio.
The state-owned Sonali Bank, the country's largest commercial bank, decided to take charge of the small-ranked Bangladesh Development Bank Ltd (BDBL) while Bangladesh Krishi Bank (BKB) preliminarily decided to take over Rajshahi Krishi Unnayan Bank (Rakub), also small in size.
Contacted, managing director and chief executive officer of Dhaka Bank Emranul Huq said they had started analysing banks having small-scale balance sheets for potential partners.
"The merger risks would be not higher in taking small banks. We want to choose such a partner having lower risks."
Top executive of Mutual Trust Bank Syed Mahbubur Rahman says there are many calculations need to be done before going for merger. The BB recently issued merger-related guidelines.
"We are just watching the developments. We will sit with our board members and let them know details before searching for potential partners," he told The Financial Express.
Managing director and chief executive officer of Jamuna Bank Mirza Elias Uddin Ahmed opines that the main objective of mergers is to spread the corporate culture of the good banks into the banking operations of the problematic banks.
Administration and human resource costs account for almost 50 per cent of the entire costs in operating banking business. "So, good banks would definitely look the matter very carefully before taking any such decision."
"We have already started balance-sheet evaluation of some banks. Let's see," he says about their process on this cusp of changes in the banking sector that follow suggestions from development partners.
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