Exim Bank embraces troubled Padma in maiden merger

Mergers and acquisitions in Bangladesh's banking industry get going with the maiden merger of crisis-ridden Padma Bank with EXIM Bank under a deal, sources concerned said.
Hot on the heels of central bank's forewarning -- just two days before -- about forced mergers unless voluntary mergers within banks take place by coming December, the news broke Thursday on coupling of the two private-sector banks.
Members of the board of directors of EXIM Bank in a board meeting held at the bank's headquarters in Dhaka Thursday made the decision on amalgamation of the banks.
Chairman of EXIM Bank board Md. Nazrul Islam Mazumder confirmed the decision, saying that the board members of the shariah-based Islamic bank "unanimously approved the move of merging with the fourth-generation Padma Bank".
It was previously named Farmers' Bank and changed the nomenclature into Padma Bank amid reports of irregularities and its existential risks.
About the process of the voluntary merger, Mr Mazumder, also chairman of the bank owners' apex body styled Bangladesh Association of Banks (BAB), said the whole process of the amalgamation will be fixed by lawyers of both the commercial banks following the guidelines of the central bank.
"We have already finalised the draft of the MoU that will be signed Monday next in the presence of Bangladesh Bank governor Abdur Rouf Talukder," he said, adding that a press conference will also be held on the day regarding the matter.
Contacted for his view, managing director and chief executive officer of Padma Bank Tarek Reaz Khan said their board members also approved the merger decision.
With the go-ahead from both the boards, the bank's top executive said, the mergers and acquisitions process officially started and they would sign an MoU with the EXIM Bank management next week in presence of the central-bank governor.
Asked who will bear the burden of the bad loans, Mr Khan said after the MoU of the possible merged banks, the banking regulator will make a mergers and acquisitions (M&A) policy framework to roll out across the country.
"No work is done yet. Once it (the framework) is rolled out, many things will be clear to everyone," he said.
Not only about the bad-loan stress, says the managing director, there will be a need of regulatory interventions for a certain period so that the strong banks do not face any trouble being merged with the weak.
However, the latest development on mergers and acquisitions in the banking sector sparks too many questions, especially about the naming of the merged banks as EXIM is an unconventional or Islamic bank while Padma is a conventional or non-Islamic bank in nature.
Contacted for his opinion, BB spokesperson Md Mezbaul Haque said merger or amalgamation is a globally-recognised process, not a new concept. And commercial banks are given until this yearend for voluntary merger through choosing partners on their own or face forced amalgamation under the BB-broached financial-sector reforms.
If the banks having agreed to get merged come to the BB, the central bank will assist them in accordance with the existing laws, he said.
"In terms of the post-merger name, it is the banks to decide their names after the amalgamation," he added.
The central bank is known to have already given its unofficial or verbal consent for the merger-and-acquisition initiative.
The total assets of the Padma Bank will be known after evaluation of the assets by a third party, which has not been appointed yet.
Amid amalgamation buzz, Padma Bank's immediate-past chairman Chowdhury Nafeez Sarafat resigned on January 31, 2024. Managing director and chief executive officer of the state-owned Sonali Bank Md Afzal Karim stood in as the board chairman with an additional charge.
Exim Bank is listed on the country's stock market, but Padma Bank is not registered with the capital market.
The fourth-generation conventional lender, Padma Bank, born as Farmers' Bank, came into banking operations in 2013 but faced umpteen challenges mainly because of growing NPL buildups within three years of its existence.
To rescue the struggling bank from a complete financial collapse, the government came to intervene with a fresh financial lifeline following its renaming as Padma Bank in 2019. Sixty-eight per cent stake of the Padma Bank is held by four state-owned banks -- Sonali, Janata, Agrani and Rupali -- and state investment entity, the Investment Corporation of Bangladesh.
But the rebranding move helps little as the total volume of non-performing loans (NPLs) of the bank rose to Tk 35.52 billion, which is 61.86 per cent of the outstanding loans amounting to Tk 57.41billion, at the end of February 2024.
And the percentage of the bad loans overshot BB's NPL-controlling target of 5.0 per cent for private commercial banks by June 2026.
Padma Bank has been providing its banking services to 150000 clients across the country through its 60 branches and 14 sub-branches and its deposit portfolio stood at Tk 61.86 billion by end of February last.
EXIM Bank started functioning on 3rd August 1999 with its name as Bengal Export Import Bank Ltd. On 16th November 1999, it was renamed Export Import (EXIM) Bank of Bangladesh Ltd. The bank's all conventional banking operations migrated into Shariah-based Islami Banking from July 2004.
But the amalgamation decision has not influenced trading price of EXIM Bank on the share market yet as the news hit media headlines after the end of Thursday's trading in stocks.
According to the data available at Dhaka Stock Exchange (DSE), last trading price of shares of Exim Bank, listed in 2004, was Tk 10 each. The figure of market capitalisation of the bank is Tk 14.330 billion while authorised capital is Tk 20 billion.
The bank's paid-up capital is shown Tk 14.48 billion. In the calendar year of 2022, it earned profit worth Tk 3.72 billion and gave 10-percent dividend to its shareholders in 2022, according to the DSE records on the bank's financial health.
EXIM Bank sources have said the unconventional bank serves their around 2.2 million clients with its 151 branches and 70 sub-branches spread across the country.
As of December 2023, according to the BB, the total volume of bad loans was Tk 16.29 billion, which is 3.47 per cent of the entire outstanding of Tk 469.37 billion.

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