Bank mergers
Factors to consider before bank consolidation
For a long time, the banking sector in the country has been plagued by various complex problems. Failures in recovering loans from defaulters engaged in fraudulent activities, inability to control internal malpractices and ensure good governance, increasing incidence of insider lending, and the proliferation of banks—all these complex issues have slowed down the normal functioning of the banking sector. It is primarily to address these problems that the decision to consolidate banks has been taken.
Legal reforms are crucial for bank consolidation and identification of willful defaulters
At this moment, the most discussed issue in the banking sector is weak bank consolidation and willful defaulters being identified and brought under strict penalties. For a long time, the country's economists and bankers have been suggesting reforms for the banking sector, but the authorities have not heeded them. Recently, somewhat unexpectedly, Bangladesh Bank has instructed weak banks to merge with stronger ones in order to consolidate the banking sector. Simultaneously, there have been indications of adopting stringent measures against willful defaulters, who are considered as a 'menace' to the banking sector due to their significant influence and notoriety. Many have raised questions about why Bangladesh Bank has become vigilant regarding willful defaulters of loans and why it is initiating efforts for the consolidation of weak banks. Bangladesh Bank has not taken consistent or self-motivated initiatives to enforce stringent legal measures to address weak bank consolidation and identify willful defaulters of loans.
Bank mergers, acquisitions, or dissolutions?
Bangladesh has recently received approval for a loan of 470 million US dollars from the International Monetary Fund (IMF). The first installment of the approved loan has already been disbursed in favor of Bangladesh. Former Finance Minister A.H. Mustafa Kamal, after the approval of the IMF loan for Bangladesh, had stated in an interaction with journalists that Bangladesh has received the loan approval from the IMF just as it had requested. However, the former finance minister's statement was not entirely accurate because the IMF does not provide loans to any country without conditions. Perhaps the conditions for the loan might vary from country to country, being somewhat stringent or lenient.
Bank mergers aim to prevent unfair gain
Bangladesh Bank has undertaken an initiative towards consolidation within the country's banking sector. For quite some time, certain banks in the country had been struggling to operate effectively. To address this situation, initiatives for consolidation have been taken primarily within the banking institutions. By consolidation, we refer to a scenario where two establishments merge to manage operations collectively. It's essential to note that consolidation doesn't always entail a merger of weaker entities with stronger ones or vice versa. Even entities of similar strength can engage in consolidation. The primary objective of consolidation is to strengthen market presence through increased organizational activities or to enhance competitiveness. When one entity acquires another, it's termed as acquisition. Typically, a well-performing entity is considered an acquiring institution, as it continues its commercial endeavors. Both consolidation and acquisition aim at ensuring profitability. Alternatively, if a weaker entity exists, it may be allowed to sustain within the market by providing a competitive environment without being forced out.
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