Bank merger: Can clients use old cheques, withdraw money from existing branches?

As five Shariah-based banks are set for a merger, clients are having all sorts of questions: Will they be able to withdraw deposits from the existing branches? Will their existing chequebooks be valid for withdrawals? How will it work?

The five banks will be merged into a unified entity – Sammilito Islamic Bank. The proposed bank has already received a Letter of Intent (LOI) from the central bank and approval for its name from the Office of the Registrar of Joint Stock Companies and Firms (RJSC).

Recently, Bangladesh Bank Governor Ahsan H Mansur said in a press briefing that the process of returning depositors' money will begin within a month.

"Depositors with up to Tk2 lakh amount will be able to withdraw their full deposits. For larger deposits, a phased withdrawal schedule will be announced through the government gazette," he said.

Infographics: TBS

"Every depositor will receive a market-based profit rate. The profit rate will be determined in line with market conditions as soon as the new bank starts operations," he added.

However, there remain questions among clients, and TBS has spoken to officials of merging banks and the central bank for answers.  

According to multiple officials at Bangladesh Bank, the new bank – Sammilito Islamic Bank – will receive its license within the next two weeks. Customers' current accounts will automatically transfer to the new bank, and they will be able to withdraw their deposits from the new bank using those accounts.

Administrators appointed to the merging banks told TBS that once the new bank starts operation, it will have a capital base of Tk20,000 crore. Customers' accounts from the merging banks will be transferred to the new bank, from which they will be able to access their funds.

For instance, a customer with Tk20 lakh in Union Bank will see the full amount transferred to their account in the new bank once it starts operations. Of this, Tk2 lakh can be withdrawn immediately.

"The remaining Tk18 lakh will be paid in installments over one to two years, as per a schedule announced in the official gazette. Market-based profit will be applied for this period," said an administrator of one of the merging banks, speaking on condition of anonymity.

However, a senior Bangladesh Bank official noted that in many cases, customers may choose not to withdraw funds, especially those with higher profit rates on their deposits.

Regarding withdrawals using existing cheques, a Union Bank official said, "Deposits will be transferred to accounts in the new bank, but for now, customers can still use their existing cheques at their current bank branches."

He added, "Issuing new cheques for so many customers immediately is not feasible. So if a customer presents a cheque at any branch of their current bank, it will be honoured under the new bank's authority."

Additionally, institutional depositors will have shares worth around Tk15,000 crore transferred to the new bank.

In the first phase, deposits up to Tk2 lakh per customer will be reimbursed through the Deposit Insurance Trust Fund, which currently holds around Tk18,000 crore. Considering the 75 lakh depositors of the five merging banks, a maximum of Tk12,000 crore may need to be disbursed from the fund.

The BB governor assured, "This new bank will be stronger than any other. Depositors have no reason to worry – their money is safe."

The Bangladesh Bank said that the capital of the Sammilito Islamic Bank will be Tk35,000 crore, with Tk20,000 crore contributed by the government and Tk15,000 crore allocated as shares to institutional depositors. 

The five banks currently serve around 75 lakh depositors with total deposits of Tk1.42 lakh crore, while their outstanding loans amount to Tk1.93 lakh crore, 76% of which are non-performing.

How will the new bank be managed?

The new bank, to be named "Sammilito Islamic Bank," is expected to receive its licence soon. Following this, the signboards of the merging banks will gradually be updated to reflect the new name.

Nazma Mobarak, secretary of the Financial Institutions Division under the Ministry of Finance, will serve as the chairman of the new bank board. The board will also have seven directors – five from the government and two from the private sector.

Central bank officials said that since the government is providing a significant portion of the initial capital, ministry representatives will initially dominate the board. Within six months to a year, however, the board will be restructured to include experienced bankers and business leaders.

Merger time and banks' operations during the merger

The central bank governor said the administrators currently appointed to the five banks will focus on four main areas: maintaining the banks' daily operations, securing their information technology infrastructure, evaluating the workforce and human resources, and reorganising and optimising the branch network.

The entire merger process may take one to two years. Although the five banks will merge into a government-owned entity, it will be managed like a private bank.

All normal banking operations will continue, and customer services will not be disrupted. Payments, opening of import-export LCs, deposit and cheque processing, and remittance services will continue under the banks' existing names as before.