Transparency International Bangladesh (TIB) has urged the cessation of hasty and forced mergers in banks, citing it as the latest manifestation of continued impunity in the banking sector.
TIB asserts that the lack of transparency in the bank merger process, particularly regarding the management of defaulted loans and issues of accountability within weak banks burdened by such loans, essentially sidesteps the main problem of the crisis and grants impunity to the factions responsible for loan defaults and forgery, stated a press release issued on Tuesday (23 April).
Bangladesh Bank has initiated steps to merge underperforming banks with stronger counterparts in order to salvage weak banks in the sector. This move is intended to align with global practices related to addressing crises in the financial sector.
TIB said, “Global quality control standards and policies, including Bangladesh Bank’s own policies, have been ignored to complete this sensitive and complex task hastily. The arbitrary announcement of certain bank mergers, coupled with concerns among well-performing banks involved in the process and the unwillingness of some underperforming banks, has worsened anxiety, unrest, and uncertainty within the banking sector.”
The anti-corruption organization believes that such instances have cast doubt over the entire process even before it started.
According to the merger policy issued by the Bangladesh Bank, underperforming banks are allowed to express their interest to merge with financially sound banks following the assessment of assets and liabilities by an auditor firm enlisted by the central bank and disclosing the details in the current year.
Considering the evaluation of assets, there are provisions for good banks to voluntarily express interest in initiating mergers with weaker banks.
Highlighting that the central bank can resort to forceful mergers only if the initial steps fail, TIB Executive Director (ED) Dr. Iftekharuzzaman stated, “Based on media reports, only one weak bank has shown interest in a voluntary merger, and conversely, it's not necessarily the case that the financially sound banks mentioned in the process have willingly and consciously engaged in it. This suggests that the entire process has been arbitrarily imposed on them, which is a clear violation of declared policies.
The TIB executive director questioned how fair and reasonable it is to transfer the burdens of defaulted loans and forgeries to good banks without first assessing the assets and liabilities of the weaker ones.
“It appears that the ongoing actions are akin to prescribing paracetamol for cancer treatments. On one hand, the culture of loan defaults is exacerbated by shielding factions responsible for them and forgery under the guise of mergers. Conversely, significant attempts are underway to compel good banks to digest weaker ones as a result of their success. This has fostered an atmosphere of anxiety and restlessness across the entire sector,” he added.
Expressing apprehensions that attempts to salvage weak banks might backfire, the TIB executive director remarked, “Government-government, private-government, and private-private mergers are all being considered. However, it remains unclear on what basis these banks have been prioritized, or how the decision was made regarding which financially sound banks would merge with which weak ones. Additionally, some banks not yet mentioned in the merger process have been kept afloat through liquidity assistance.”
“Two government-owned banks, known for their strong performance, are slated to absorb two underperforming banks despite having significant amounts of defaulted loans themselves. Given these circumstances, it is unrealistic to believe that simply merging banks, without ensuring effective accountability-based good governance to address the basic challenges in the banking sector, will resolve the problem or safeguard the interests of clients,” he added.
Criticizing the provisions of the merger policy, which permit directors of underperforming banks to return to the board of the merged bank after a five-year break, as well as the provision for the reappointment of top executives implicated in mismanagement, the TIB Executive Director stated, "This provision rewards the perpetrators behind the banking crisis with impunity rather than holding them accountable. Furthermore, the provision to maintain secrecy of new irregularities or corruption uncovered during audits of underperforming banks will not only hide financial discrepancies but also hinder the process of holding individuals accountable. Essentially, it means protection for wrongdoing. It is disheartening to witness what is happening in the name of mergers, as it shows how defaulters control banks."
As per the policy, a state-owned asset management company will acquire the non-performing loans of weak banks, indicating that government funds will be utilized to purchase these bad loans. This essentially means that loan defaulters have once again been exempted by using public funds. Given the precarious state of the banking sector and public concerns, TIB emphasizes the need for essential reforms in the bank merger policy. These changes must be in line with global norms and experiences, as well as the opinions of unbiased and renowned experts in the field. Furthermore, until these reforms are implemented, TIB calls for halting the implementation of decisions made under the pretense of mergers.
