90% default loans, insolvent for years – Padma Bank merger still not in sight

Highlights:

• Padma Bank insolvent for years; over 90% loans defaulted
• State-owned banks invested over Tk700 crore, suffering heavy losses
• Bank sought Tk3,500 crore liquidity support from Bangladesh Bank
• Negative equity Tk4,533 crore signals extreme balance-sheet insolvency
• Bangladesh Bank favors merger; final decision rests with government
• Corruption, failed bailouts, and stalled mergers deepened depositor suffering

Private commercial Padma Bank, formerly known as Farmers Bank, has remained insolvent for years, with over 90% default loans causing suffering for depositors and losses for state-owned banks against investments of over Tk700 crore.

During a presentation in September 2025, the bank sought liquidity support of Tk3,500 crore from the Bangladesh Bank as part of its strategic plan to make it operational.

In its last attempt after the regime change, the Bangladesh Bank discussed with the finance ministry the bank's merger with state-owned banks but did not receive any formal response.

The corruption-riddled Padma Bank, which is a de facto government bank with 68% shares held by four state-owned banks and the Investment Corporation of Bangladesh (ICB), failed to merge despite multiple attempts since 2021.

The state-owned banks, including Sonali Bank, Janata Bank, Agrani Bank and Rupali Bank, and the ICB, which represent the board of Padma Bank, are now in trouble due to their non-performing investment.

The bank has been running with negative equity of Tk4,533 crore as of June 2025, according to a presentation the board recently made to the Bangladesh Bank.

Negative shareholder equity for a bank means its total liabilities exceed its total assets, signalling balance-sheet insolvency. This critical state indicates that if all assets were liquidated, the bank could not repay all its depositors and creditors, reflecting extreme financial distress and potential bankruptcy.

Infograph: TBS

Decision rests with govt: Mansur

When asked whether the Bangladesh Bank has any plan to resolve the Padma Bank crisis, Governor Ahsan H Mansur said the issue is "extremely sensitive" as a large volume of deposits remains trapped and ordinary people are suffering.

He said resolving a bank requires a large amount of money, with each case potentially needing between Tk5,000 crore and Tk10,000 crore, which is not easy to arrange immediately.

Mansur said Padma Bank has submitted a viability plan claiming it can survive, but the central bank has asked for proof of its viability.

"The reality is that when a bank's non-performing loans exceed 70%, it becomes almost impossible [for it] to turn around," he said, adding that this reality is being considered in ongoing high-level discussions.

He said Padma Bank is not alone, noting that several other banks are in a similar position and have effectively become de facto state-owned banks as the government invested in them after their collapse.

"In that reality, treating them as state-owned banks and merging them with other state-owned banks remains a discreet solution under consideration," he said.

Mansur said, "Bangladesh Bank could technically proceed very quickly, but since the bank is state-owned, the decision rests with the government."

He said written approval from the finance ministry and adherence to specific procedures are required, adding that Bangladesh Bank's authority over state-owned banks is limited compared to private banks due to the reality of dual governance.

A bank can't operate in this manner: Sonali MD

Talking to The Business Standard, Sonali Bank Managing Director Md Shawkat Ali Khan, who is also chairman of Padma Bank as a strategic investor, said they too are waiting for a government decision.

Referring to the recent presentation on a strategic recovery plan, he said the Bangladesh Bank did not give any decision on the liquidity support they had sought.

He said the bank is not operational as it is not receiving new deposits. Moreover, it cannot repay previous depositors, which has eroded customer confidence and could affect the wider banking industry.

The bank has been paying salaries and office rent from loan recoveries, he added. "A bank cannot operate in this manner and that the government needs to make a decision."

He said investor banks are in trouble due to their non-performing investment in Padma Bank. They will soon sit with the government to decide how to reflect it on their balance sheets, as such investments require provisioning.

He said they are aware of unofficial discussions between the Bangladesh Bank and the finance ministry over a possible merger with state-owned banks but have received no confirmation.

He said the main challenge to merging Padma Bank lies in its non-performing employees, adding that merging all its staff into a state-owned bank would not be viable.

In this situation, the board has instructed management to cut non-performing employees, reduce salaries and close rented offices to lower operating costs, he added.

How Padma turned insolvent

When Farmers Bank, which later became Padma Bank, was nearing collapse due to massive lending anomalies since its inception in 2013, four state-owned banks and the Investment Corporation of Bangladesh came up with a Tk715 crore bailout in 2018.

The state-owned banks also invested a further Tk1,000 crore in other forms, including subordinate bonds and fixed deposits. The total public investment failed to stop the bank's capital erosion, as it could not recover money from defaulters.

Moreover, the reconstituted board under the government's bailout package continued corrupt practices during the tenure of then chairman Chowdhury Nafeez Sarafat.

Sarafat joined Padma Bank in January 2018 after former chairman Muhiuddin Khan Alamgir resigned from the board over alleged involvement in financial scams amounting to Tk500 crore.

Alamgir was allowed to exit smoothly through resignation, while public funds were injected to compensate for the losses caused by the scam.

Sarafat was appointed chairman by the Bangladesh Bank and allegedly siphoned money from the bank to his asset management firm, Bangladesh RACE Asset Management.

He later exited the bank by resigning, similar to former Farmers Bank chairman Muhiuddin Khan Alamgir, after failing to restore the bank's financial health.

Neither Sarafat nor Muhiuddin Khan Alamgir has faced legal action over the alleged plundering that pushed the bank towards collapse.

According to the latest statement as of June 2025, the bank's total deposits stood at Tk6,347 crore and loans at Tk5,598 crore, of which Tk5,131 crore, or 91.66%, had turned non-performing. The bank's operating loss stood at Tk341.42 crore.

Retail depositors hold Tk1,487 crore, corporate depositors Tk780 crore and banks Tk404 crore, according to the bank.

Moreover, the bank has payable dues of Tk683 crore to the Bangladesh Bank, including penalties and shortfalls in maintaining the mandatory Cash Reserve Ratio and Statutory Liquidity Ratio.