Bangladesh Bank's initiative to merge 5 crisis-prone Shariah-based banks has got momentum, and within a week, this is likely to be implemented, Governor Ahsan H. Mansur told a group of journalists on Monday after a meeting with the officials of different banks.
Economists termed this an important event in the financial sector of Bangladesh. They believe that the government's decision to merge five weak banks could be a crucial step toward reforming the country's beleaguered banking sector.
However, experts are also raising concerns about potential political challenges and the need for a comprehensive strategy beyond just consolidation.
The banks set for the merger are First Security, Global, Union, Social Islami, and Exim Bank. Their default loan rates reportedly range from 48% to a staggering 96%. The government plans to manage these banks under a unified, state-run structure.
Speaking to journalists, Bangladesh Bank Governor Ahsan H. Mansur announced that the merger process would begin within a week and that the government has been asked to provide the necessary funds.
Toufic Ahmad Choudhury, former director general of the Bangladesh Institute of Bank Management (BIBM), welcomed the move
"We all want the banks to return to a healthy state. The fact that the Bangladesh Bank is now active in this regard is good news," he said.
He added, "We wish Bangladesh Bank's many efforts to succeed."
However, Dr. Toufic also cautioned that the mergers alone would not solve the sector's deep-rooted problems.
He highlighted the potential for significant political backlash, citing the example of former finance minister Saifur Rahman, who was forced to abandon a plan to close 500 bank branches due to political opposition, even from within his own party.
"Simply merging them won't be enough," he warned.
"There will be a lot of political crises."
Dr. Toufic stressed the importance of addressing the root causes of the problem, particularly the issue of defaulting loans. He questioned the basis for the mergers, noting that the plan does not seem to be based on capital adequacy.
"The problem is defaulting loans, and that needs to be solved," he said.
He also raised concerns about accountability, asking who is responsible for the fact that some banks are unable to repay their depositors.
Mashrur Reaz, Chairman of Policy Exchange, Bangladesh, told UNB that banking is a business built on trust, and if that trust is lost, the sector cannot survive.
He called for strengthening banks and taking strict action against willful defaulters.
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