State-owned Sonali Bank PLC and Bangladesh Development Bank PLC (BDBL) took a step forward in their merger plans on Sunday by signing a memorandum of understanding (MoU) hoping to become a stronger financial institution.
The MoU was signed at the Bangladesh Bank headquarters in the city. Managing Director and Chief Executive Officer of Sonali Bank Md Afzal Karim and BDBL's top executive Md Habibur Rahman Gazi signed the document on behalf of their respective banks.
Last month, the lenders' boards approved the merger plan. During the MoU signing on Sunday, Bangladesh Bank Governor Abdur Rouf Talukder was present.
The MoU paves the way for the central bank -- which is overseeing the merger process -- to appoint an independent auditor to assess crisis-ridden BDBL's liabilities and assets.
BDBL employees have expressed concerns about job security following the merger. According to the central bank policy, the acquiring bank will make decisions about staff retention after three years, based on the performance of employees from the weaker bank.
However, Sonali CEO Mr Afzal Karim assured reporters after the signing that the merger would not lead to job cuts.
"I am confident that this amalgamation will further strengthen the financial health of both banks," he said.
Mr Karim said the merger would not negatively impact customer interests. "There is no need to panic," he added. "In fact, we expect the merger to improve several key indicators, such as the banks' credit-providing capacity."
Sonali Bank's Chairman Ziaul Hasan Siddiqui said they have carefully reviewed the agreement before signing.
"We made this decision independently, without any external pressure," he said. "We then approached the central bank governor to discuss the merger with BDBL."
BDBL Chairman Shamima Nargis said the bank performed well on most key indicators, except for non-performing loans (NPLs). However, various measures implemented by the bank have helped reduce the burden of bad loans.
She said the bank cannot single-handedly reduce NPLs to the desired level in a short time frame unless borrowers come forward. Legal complications arise if the bank resorts to selling collateral.
She said the boards of both banks made the merger decision to improve the institutions' performance.
Bangladesh Bank Policy Advisor Abu Farah Md Nasser, Deputy Governor Nurun Nahar and Spokesperson Md Mezbaul Haque were present at the MoU signing ceremony.
In 2009, Bangladesh Shilpa Bank and Bangladesh Shilpa Rin Sangstha merged to form BDBL. Despite the change in the name, the merger, however, has not yet yielded the expected improvements.
BDBL's NPLs stood at Tk 9.82 billion up to December 2023 -- around 42.46 per cent of its outstanding loans totaled Tk 23.14 billion.
On the other hand, Sonali Bank had outstanding loans of around Tk 931 billion as of December 2023. Of these loans, Tk 131.50 billion were classified as non-performing, representing 14.13 per cent of the total credit disbursed, according to Bangladesh Bank data.
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