Mergers and acquisitions (M&A) may be in wait as a cure for comparatively weaker banks to strengthen their capital base, as they are deemed ridden with problems, according to a central bank plan.
Bangladesh Bank Governor Abdur Rouf Talukder Wednesday said the regulator was now weighing this option, in a package of remedies for the financial sector at large.
"There is a provision of merger and acquisition in the recently amended Bank Company Act. We're examining it as to whether weak banks can be merged to make them financially and operationally sound," the governor said during the presentation of new monetary policy for the country.
His attention was drawn to what steps the regulator has taken to strengthen the underperforming commercial lenders while he was speaking at the MPS (monetary policy statement)-unveiling programme. The MPS for the last half of FY 2024 was placed at the BB headquarters.
Responding to a question over people's 'trust deficit' in the banking sector for a lack of good governance in some banks, the governor dismissed such an allegation, saying that there is no trust deficit of people in the banking industry.
"No bank has shut in the 52-year history of Bangladesh and I can assure you that no bank will be closed in the coming days as well. If we can do the merger, I do firmly believe that the situation of the banks will get better," he said.
In the newly amended Bank Company Act 2023, the BB has been vested with the authority to initiate forced mergers of any bank if the board of directors and management are found to be involved in activities that go against depositors' interests.
At the same time, the governor informed that the banking regulator planned to introduce crawling peg corridor to help manage foreign-exchange risks by stopping unusual fluctuations in the rates.
He says many quarters keep suggesting free-floating rates but it is not possible under the current macroeconomic context of the country, and countries around Bangladesh are following market-based models.
"There are some market-based models and crawling peg is one of the most recognised models. We want to introduce such corridor that will be based on economic fundamentals to manage foreign-exchange risks."
Under the new matrix, according to the governor, there will be a narrow band corridor where REER (real effective exchange rate) stands in the middle. The corridor will have an upper ceiling and floor rate and the exchange rate will move within the bounds.
As part of the plan, Mr Talukder said, the central bank will go for basket pegging of currencies and analyse exchange rates, REER and inflation of 15 major trading partners of Bangladesh, which account for around 85 per cent of the country's overall imports and exports.
It is learnt that a technical team of the IMF will be visiting Dhaka soon for capacity development to implement the crawling peg-based exchange regime, probably from early last quarter of the ongoing financial year (FY'24).
Regarding a growing current-account deficit in the Islamic banks, the BB governor said there is a structural problem hurting the unconventional commercial banks badly.
He said the conventional banks have to keep 13 per cent of their net time and demand liabilities in the form of SLR while it is 5.5 per cent for the unconventional banks.
The traditional banks have enough instruments like treasury bills and bonds through which they can maintain the regulatory requirement. On the other hand, Sharia'h-based banks do not have enough instruments, he told the economic journalists.
"They (Islamic banks) have only Sukuk bond, which is only 2.50 per cent of their total requirements, and this is what creates the problem. We're working to address the problem," he added.
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