Staff Reporter :
Bangladesh’s financial sector is set to witness another significant consolidation, with the announcement on Monday that the state-owned BASIC Bank will merge with the well-regarded private City Bank.
This decision comes on the heels of the successful merger of EXIM Bank and Padma Bank last month.
The news follows a meeting held that morning between Abdur Rauf Talukdar, the Governor of Bangladesh Bank, and City Bank’s leadership, including Chairman Aziz Al Kaiser and Managing Director Masrur Arefin.
Sources familiar with the discussions revealed that the merger will be undertaken on a voluntary basis, marking BASIC Bank as the second public bank to join forces with a private sector institution.
This move comes after City Bank’s board formally proposed the merger on March 19th, 2024. Following this proposal, extensive discussions were held between the boards and officials of both banks to finalize the details of the consolidation.
Interestingly, despite the merger itself, it has been decided that the two banks will maintain separate financial reporting for the next three years.
This decision aims to ensure a smooth transition and allow for proper integration of financial systems.
Commenting on the broader trend of bank mergers in Bangladesh, Mezbaul Haque, Executive Director and spokesperson for Bangladesh Bank, revealed that several other banks are currently engaged in discussions with the central bank regarding various financial matters, including potential mergers.
Haque assured the public that any finalized decisions on these discussions will be communicated transparently.
BASIC Bank Ltd., a once-trusted and profitable state-owned financial institution, is currently facing a severe financial crisis, struggling to meet its operating expenses.
A recent report from the central bank showed BASIC Bank’s current operational model is unsustainable.
The Bangladesh Bank’s findings also revealed that BASIC will be unable to cover its operating expenses unless it takes steps to recover its outstanding loans, disburse fresh loans, and attract low-cost deposits.
According to the report, while the average ratio of total non-performing loans in the country’s banking sector stands at 8.20 percent, BASIC Bank exhibits a highly elevated total non-performing loan rate of 57.85 percent as of December 31, 2022.
BASIC Bank’s downfall can be traced back to 2009, when Sheikh Abdul Hye Bacchu, the then chairman, allegedly orchestrated scams amounting to Tk4,500 crore between 2009 and 2013. These scams involved the distribution of loans based on forged documents. Bacchu stepped down from the bank in July 2014.
In 2008, prior to Bacchu assuming the chairmanship, BASIC demonstrated robust financials with a net interest income of Tk112 crore. During that period, the bank efficiently managed its operating expenses, a mere Tk81.7 crore, solely through its net interest income.
However, following Bacchu’s forced resignation in 2014 due to his alleged involvement in mega scams totaling around Tk4,500 crore, the bank’s financial health deteriorated significantly. The net interest income plunged to Tk139 crore in negative territory, while operating expenses soared to Tk277 crore.
Amid eroding trust, the troubled bank faced more hurdles with the private sector and individuals avoiding financial transactions with it. State-owned corporations, supported by the government, remained the primary depositors.
The deteriorating trust widened the gap between BASIC Bank’s income and expenses.
