Bangladesh Bank has issued a policy guideline on bank consolidation. A comprehensive policy guideline on this matter was issued yesterday by the Banking Regulation and Policy Department of the central bank. According to the announcement, any bank in the country, following the law, can voluntarily merge with another bank if they wish. Conversely, if a bank does not wish to consolidate even when facing financial difficulties, the central bank can compel it to do so. Weak banks that refuse to consolidate will risk losing their existence and license. They can even be compelled to change their names by the acquiring stronger banks.
The policy also states that employees of weak banks after consolidation will not be laid off for the next three years. It mentions that decisions regarding the employment of staff will be made based on performance evaluations after three years. After consolidation, the Managing Director (MD), Additional Managing Director (AMD), and Deputy Managing Director (DMD) of weak banks will lose their positions. However, if the acquiring bank desires, they can be appointed to suitable positions. Employees of government banks after consolidation can hold similar positions in other banks. The directors of weak banks after consolidation will be considered ineligible for these positions for five years. Following the expiration of five years, new directors will be selected in accordance with prevailing rules and laws.
Discussions have been ongoing for about six months regarding mergers and acquisitions in the country’s banking sector. Despite the government and central bank’s policy to increase the number of banks, the current situation has taken a contradictory stance. It has been revealed that through consolidation, the number of banks could decrease from 61 to 45. Weak banks in government, private, and foreign sectors will be merged with stronger banks. Exim Bank has informed Padma Bank, a troubled bank in the private sector, about its acquisition plans. An agreement has been reached between the two banks in this regard. Similarly, Rakab, a government agricultural development bank, will be consolidated with Bangladesh Krishi Bank. Bangladesh Development Bank (BDBL) will merge with Rupali Bank. The consolidation process of these four banks will commence through agreements to be signed next week.
The central bank initiated the consolidation process without policy guidelines. Yesterday, with the issuance of a comprehensive policy guideline, the formal implementation of the much-discussed consolidation process has begun. Titled “Policy Guidelines for Bank Consolidation,” the announcement states that according to the provisions of the Company Law, 1991, Sections 49(1)(g) and 77(16), and the Company Law, 1994, Sections 228 and 229, Bangladesh Bank has been empowered to approve the consolidation process of Bangladesh Bank and to promote banks on its own or through intermediaries to consolidate with other banks. Pursuant to Section 77(k) of the Company Law, rapid corrective action frameworks have been issued to Bangladesh Bank last year. Under this framework, if any bank falls within the scope of the framework due to capital and liquidity deficiencies, significant non-performing loans, governance deficiencies, or harmful actions to depositors, Bangladesh Bank will impose corrective or directive measures on that bank for restoration. If the restoration plan fails, Bangladesh Bank will apply to the High Court Division of Bangladesh Bank without diluting the provisions of Sections 77 and 314 of the Company Act to ensure proper management of the bank’s interests or public interests in case of failure to pay off debt in full compliance with Section 31 of the Act. Any bank with a license cannot voluntarily go out of business without Bangladesh Bank’s written certification. If voluntary liquidation fails at any stage, the company will apply to the Bangladesh Bank High Court Division for the closure of that bank without undermining the provisions of Sections 314 and 315 of the Company Act.
Regarding the policy guideline on bank consolidation initiated by banks themselves, it is stated that according to the provisions of the law, any bank, by consolidating with another bank or financial institution, may take a decision to form a stronger bank economically. The main objective of this program is to address existing problems of weak banks through consolidation and to strengthen the economy by improving the activities of stronger banks, enabling the unified bank to provide more services to the public. At the request of the concerned bank and in accordance with Section 75, Bangladesh Bank may assist in consolidation. While Section 286 of the Company Act states some differences, without diluting the provisions of Sections 314 and 315 of the Company Act, if unable to repay debts, a bank with a license cannot voluntarily go out of business. If voluntary liquidation fails, the bank will apply to the Bangladesh Bank High Court Division for closure without diluting the provisions of Sections 314 and 315 of the Company Act.
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