Depositors desert BASIC with funds amid its merger troubles

Depositors are deserting the state-owned BASIC bank amid its merger troubles and the management seeks government intervention with bailout pending amalgamation with a private bank, sources said.
Although the financial health remained poor previously following its loan scams, they said, the situation worsens further because of mass withdrawal of funds by different type depositors in the wake of the merger decision.
The bank authority has requested urgent government steps necessitated to deal with the problems in the interregnum.
It has also placed some bailout packages, requesting the government to ask different state agencies to deposit funds with the bank to strengthen its financial health.
Besides, it has sought deposit from government at lower interest rate, including policy supports, and clarifying government position about the merger decision.
In the letter, the state bank fears a "negative impact in the country's entire banking sector if the bank falls in further bad situation and the ongoing situation continues".
The crisis-ridden bank also fears that customer cheques may face "dishonor anytime". Consequently, "there will be no confidence of the clients in the bank".
Although the merger issue has been discussed for many days in the country, Bangladesh Bank (BB) suggested merging the weak banks in a meeting with the banks' top executives on January 31 last.
Thereafter, on April 08, it was decided that the troubled Basic Bank will be merged with private commercial City Bank PLS.
Since the coupling decision went flying, depositors began deserting, like the way rats desert a sinking ship, withdrawing more than Tk 25 billion so far.
"Individual-level depositors have abnormally been withdrawing deposits," says one source in the banking circles.
Different state agencies have written to the bank about their intent to withdraw their deposited funds. On the other hand, no new deposits can be collected from other sources due to the present situation, reads the letter about the double bind.
Currently, the volume of statutory liquidity ratio (SLR) deficit stood at Tk 18 billion in the bank because of announcing merger.
The authority aired fears that payment of staff salary would be uncertain soon if the situation is not saved.
The bank has fallen into a severe crisis due to announced merger matter. Apart from that, the board of directors of BASIC Bank has officially written to the government that it does not want to merge with another private bank, a senior official of the bank said.
The Managing Director of the Bank could not be contacted despite several attempts over the phone.
"We all-level staffs do not want merger with any private commercial bank. The bank was performing well in various business indicators, headed by the current board of directors. It would be in a good position if the government provides necessary support during the period," the banker added.
He also mentions that they immediately need government support to strengthen their capital base, restore depositors' confidence and continue operations in a full swing.
In 2009-2014, loans were sanctioned without following rules properly, which resulted in increased volume of classified loans, negative shifting of the level of classified loans and erosion in the value of collateral given against loans, according to a document.
In September 2009, Sheikh Abdul Hye Bachchu was made chairman of BASIC Bank. The government appointed him on contractual basis for three years. Later, his tenure was extended for two years in September 2012.
After his appointment, the bank's performance started deteriorating as Sheikh Bachchu and other directors of the board allegedly indulged in "gross irregularities in sanctioning loans in violation of rules and regulations of Bank Company Act", according to sources in BASIC Bank.
The government dismissed the board of directors of the bank in 2014.
Sector experts are against providing any financial help or support to the bank that has gone too far in "deep crisis". They say the bank's overall position is not good because of previous loan irregularities.
Contacted for his view of the conundrum, former Bangladesh Bank governor Dr Salehuddin Ahmed said the Basic bank overall condition is not good. "For this, I believe that the government should not provide financial support in favour of the bank. It would not help overcome the situation."
He suggests that the central bank should take some decent steps to rescue the bank from the prevailing situation due to merger decision, including previous loan scams.
Mr. Ahmed is in favour of merging the state bank with any state-owned bank, if possible. But he is against merger of the state bank with any private commercial bank.

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