Troubled banks worry Muhith Merger can be a remedy, he writes to BB

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Some banks are in serious trouble. A number of sponsors are bankrupting banks, while another group is out to grab power of banks. Some directors, in collaboration with a few sponsors, are busy trying to change ownerships of banks. These were among the observations reportedly made by Finance Minister AMA Muhith in a recent letter to the Bangladesh Bank governor.

It is time to merge one or two problematic banks and the Bangladesh Bank should consider this, he said in the letter.

“It is my view that time may be right to start the initial process of merging the banks,” said Muhith mentioning the problems in the banking sector.

The finance minister sent the letter to the central bank on December 28 last year, an official of the finance ministry told The Daily Star yesterday.

The central bank has so far been changing directors of banks and taking punitive actions against managing directors, Muhith said.

On December 31, the minister said entrepreneurs were responsible for the Farmers Bank debacle.

“I think for the Farmers Bank, the best solution is a merger with another bank,” Muhith told reporters at his secretariat office last week. “The central bank will do it. In this regard I can advise and I have also done so.”

The minister raised the merger issue when he recommended the central bank to issue licences to three more banks.

Bangladesh Bank has already started the process of issuing the licenses to Bangla Bank, People’s Islami Bank and Police Bank.

Mirza Azizul Islam, a former adviser to a caretaker government, told The Daily Star yesterday that the finance minister recommending new bank licences and then advising mergers of weak banks was contradictory.

“There is no law in the country about forced mergers of banks. The central bank has nothing to do to force the banks to merge. A strong bank will not show any interest in taking the responsibility of a weak bank,” he said.

Ahsan H Mansur, executive director of the Policy Research Institute, told The Daily Star that if two or more banks took the initiative to merge, considering the ongoing volatile situation in the banking sector, it would be supportable.

“It is a good initiative, but unprecedented in the country’s banking sector,” he said.

Mansur, however, said issuing licences to new banks was unacceptable as Bangladesh has 57 banks, which is high considering its business-economic volume.

The financial health of some new and old banks has significantly deteriorated in recent times following gross violations of banking rules and norms.

The Farmers Bank has recently failed to repay depositors’ money owing to various irregularities.

As the situation worsened, Bangladesh Bank forced the bank’s Chairman Muhiuddin Khan Alamgir and its Audit Committee Chairman Mahabubul Haque Chisty to step down on November 27.

The bank’s Managing Director AKM Shameem was also removed.

In December, the central bank also removed NRBC Bank Managing Director Dewan Mujibur Rahman over his alleged involvement in a number of loan scandals involving around Tk 700 crore.

The NRBC Bank and the Farmers Bank restructured its board of directors last month following the central bank’s directives.

Last year, a Chittagong-based business conglomerate took ownership of Islami Bank Bangladesh and Social Islami Bank which led to criticism from different quarters.

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