Bank mergers herald a new era

Bank mergers in Bangladesh herald a significant shift in the country's banking sector, as troubled institutions seek solace through mergers with more stable counterparts. The landmark merger between Padma Bank and EXIM Bank represents a pivotal moment in Bangladesh's banking history, marking the first instance of such consolidation in the country. Padma Bank, formerly known as Farmers Bank, has faced persistent challenges since its inception in 2013, struggling with ballooning non-performing loans and defaults despite rebranding efforts in 2019. On the other hand, EXIM Bank emerges as a sturdy entity amidst these challenges.
The decision to merge was made during a critical meeting of EXIM Bank's board, reflecting a strategic move to stabilize Padma Bank and safeguard the interests of its depositors. If successful, the merger would lead to the dissolution of the Padma Bank name, signaling a new chapter in its journey. Recent financial data reveals the stark contrast between the two entities, with Padma Bank grappling with significant outstanding loans amounting to Tk 5,740 crore, with Tk 3,550 crore in defaults, compared to EXIM Bank's more stable financial position, facing about 3.5 per cent of its total outstanding loans of Tk 46,937.63 crore turning sour.
Beyond the Padma Bank-EXIM Bank merger, several other banking institutions in Bangladesh are exploring similar consolidation opportunities. State-run Sonali Bank's endeavor to acquire Bangladesh Development Bank Ltd (BDBL) and Bangladesh Krishi Bank's (BKB) pursuit of Rajshahi Krishi Unnayan Bank (Rakub) underscore the broader trend of strategic mergers in the sector. City Bank's bid to absorb state-run BASIC Bank and United Commercial Bank Limited's (UCBL) plans to acquire National Bank further exemplify this trend.
These proposed mergers, while voluntary, are intricately linked to the central bank's overarching efforts to reform the banking sector, which are closely tied to IMF loans aimed at bolstering financial stability. Sonali Bank's acquisition of BDBL, for instance, is part of the conditions tied to $4.7 billion-worth loans from the International Monetary Fund (IMF). However, amid these consolidation efforts, the World Bank has emphasized the importance of conducting thorough evaluations of asset quality before proceeding. Blindly pushing for consolidation without considering the underlying assets could potentially lead to counterproductive outcomes.
As Bangladesh's banking sector embarks on this transformative journey through strategic mergers, it holds the promise of fostering resilience and prosperity in the face of economic challenges. While mergers pose operational hurdles, such as integrating systems and corporate cultures, the potential long-term benefits, including stability and economic growth, outweigh these challenges. Nonetheless, regulators must tread cautiously to strike the right balance and ensure positive outcomes for all stakeholders.
The consolidation of banks in Bangladesh represents a critical step toward maintaining a stable and thriving financial ecosystem.

Radif Hasan
North South University
Majoring in Finance
[email protected]