BASIC, Rakub seek govt decision on their merger

BASIC Bank and Rajshahi Krishi Unnayan Bank (Rakub), two state-owned banks, have reached out to the finance ministry, seeking clarification regarding the government's stance on their proposed merger with other banks.

They have expressed concern over the noticeable withdrawal of deposits following the announcement made early last month. Despite this, both banks have affirmed their willingness to adhere to the decision – whether it involves a merger or not – as will be instructed by the Financial Institutions Division on behalf of the government.

Earlier, the Bangladesh Bank said BASIC Bank will merge with City Bank, a private lender, and Rakub will merge with state-owned Bangladesh Krishi Bank (BKB).

Last week, BASIC Bank and Rakub separately wrote letters to the Financial Institutions Division, urging the government, as the owner of these banks, to clarify its stance on the proposed merger. TBS has seen copies of those letters.

BASIC Bank concerned over wholesale money withdrawal by depositors

In the letter sent to the Financial Institutions Department on 7 May, BASIC Bank said since the news of the merger of the government bank with a private bank on 8 April was published, the bank has plunged into a deep crisis due to abnormal withdrawal of deposits.

The letter, signed by BASIC Bank Managing Director Md Anisur Rahman, reads, "Depositors have already withdrawn around Tk2,500 crore. Various government offices, departments and agencies have sent letters to the bank to withdraw more deposits. In the present scenario, fresh deposits are not available from any other sources. Moreover, deposits are constantly being withdrawn at the individual level."

Due to the crisis of confidence created among the customers due to the news of the merger with the private bank, the statutory liquidity reserve (SLR) deficit of the bank stood at around Tk1800 crore, said the MD.

"There has never been any shortage of SLR or check dishonour in this bank. If the current situation doesn't improve soon, there's a risk of cheques being dishonoured in the future. This could totally damage public confidence in the bank," he said.

If this situation continues, the bank will soon fall into a deep crisis, which will have a negative impact on the entire banking sector, said the MD. "Apart from this, if the emerging situation is not handled properly, the payment of salaries and allowances to the officers and employees will face uncertainty."

The letter also reads, "Since the created crisis has gone beyond the control of the bank, it is not possible for BASIC Bank to deal with the crisis alone, so the government needs to take immediate action in the situation."

The BASIC Bank MD suggested that the government send a clear message to various government agencies, assuring them that keeping deposits with the bank is safe and secure.

Besides, BASIC has sought policy support including the provision of deposits from the government at low interest along with the request to keep government deposits in the bank.

Rakub says merger with a weak bank will not be fruitful

Rakub on 1 May sent the letter to Financial Institutions Division Secretary Sheikh Mohammad Salim Ullah and urged the finance ministry to decide on the merger taking into account its objections.

The Financial Institutions Division, however, gave its consent regarding the merger in response to another letter sent by BKB.

The letter, signed by Rakub Managing Director Niranjan Chandra Debnath, reads, "The management expects that Rakub will achieve breakeven with improvements in all financial indicators by the June/2024 financial year-end. But, Bangladesh Bank's clear directive is that Rakub and BKB should convene emergency board meetings, reach a self-initiated policy decision in favour of the merger, and notify the Bangladesh Bank accordingly."

The letter mentioned that on 3 April, the Bangladesh Bank convened a meeting at the central bank, chaired by the governor, and informed the managing directors and chairman of Rakub and BKB of its decision to merge the agriculture sector financiers.

The letter reads, "In response to Bangladesh Bank's statement, the Rakub chairman presented a speech outlining the bank's intention to make a decision on the merger after reviewing experiences from other banks. The chairman cited Rakub's direct involvement in national food security, agricultural development, overall farmer empowerment, and the economic advancement of the northern region as reasons for the decision. Rakub is currently striving to adopt modern banking practices and implement various initiatives, including strengthening recovery efforts, emphasising the CMSME sector, introducing new lending programmes, and enhancing overall monitoring systems.  These efforts have resulted in significant improvements in overall performance.  The management expects that Rakub will achieve breakeven with improvements in all financial indicators by the June/2024 financial year-end."

On 17 April, in compliance with Bangladesh Bank's verbal directive, Rakub convened a board meeting to discuss the policy decision on the merger with BKB. The board decided against the merger, citing concerns about merging with a weak bank like BKB.

In a letter, Rakub said, "The board observed that achieving the merger's objectives requires consolidation with a stronger bank. Otherwise, the merger's primary purpose could be jeopardised."

Rakub said its board has decided against merging with BKB. Since Rakub is a fully government-owned bank, the government is its sole shareholder. The Ministry of Finance's Financial Institutions Division oversees all administrative activities of the bank, and most of its critical operations require written approval from the Financial Institutions Division, it said.

In light of these considerations, the board unanimously decided that the merger between Rakub and BKB requires the approval, decision, or prior consent of the government, specifically the Financial Institutions Division, the letter mentioned.

Therefore, before finalising the board's decision, Rakub must send a letter to the Financial Institutions Division seeking its official stance on the matter, in accordance with Bangladesh Bank's verbal directive, it said.

"Given Rakub's status as a state-owned bank, the decision of the government, specifically the Financial Institutions Division, and Bangladesh Bank regarding the merger will be considered final and will be implemented accordingly," reads the letter.

BKB board greenlights merger with Rakub

Despite Rakub's lack of interest in merging with the largest agriculture sector financier in the country, BKB's board meeting has granted policy approval for the merger. The approval was granted at the bank's 854th board meeting, held on 25 April, presided over by Md Nasiruzzaman, chairman of the bank. Six directors, including the bank's Managing Director Md Shawkat Ali Khan were present at the meeting.

TBS has seen the meeting minutes. In the meeting, a detailed comparison of the two banks' business operations was presented, along with a thorough discussion of the potential positive aspects and challenges of merging the two institutions.

According to the minutes of the board meeting, the Financial Institutions Division has approved the merger of Rakub and BKB with the objectives to reduce the operating cost of BKB and Rakub, increase customer service by establishing a large branch network, enhance remittance flow in the Rajshahi and Rangpur divisions and expand foreign trade for the overall development of agriculture and agro-based industries in Rajshahi and Rangpur divisions.

Cenbank's merger decision

The central bank in early March disclosed its plans to go for forced merger of at least 10 banks by January next year as part of its road map to reduce default loans and ensure corporate governance in the banking sector.

Bangladesh Bank Governor Abdur Rouf Talukder shared the plan with leaders of the Bangladesh Association of Banks at a meeting held on 4 March at Bangladesh Bank headquarters. Directors of seven commercial banks including state-owned and private banks attended the meeting.