5-bank merger unlikely to yield positive results: Experts

The move to merge five banks to form the new "United Islamic Bank" is unlikely to yield positive results, according to financial researchers and policymakers.

At a roundtable discussion today (28 October), experts also called for an end to the Bangladesh Bank's "dual governance" and demanded accountability for past corruption and loan defaulters in the banking sector.

These comments were made at the "Roundtable Discussion on Transition of Banking Sector in Bangladesh: Challenges and the Way forward," organised by the University of Dhaka's Department of Banking and Insurance and Policy Think and Economic Research.

'Another BDBL'

Maksudur Rahman Sarkar, chairman of the university's accounting department and a member of the Ninth National Pay Commission, voiced strong personal reservations regarding the planned merger.

"The merger to form the United Islamic Bank is, I personally believe, not a good decision," he said. "Time will tell, but this amalgamation will definitely turn into another BDBL (Bangladesh Development Bank Limited)."

He drew a parallel with the previous merger of the Bangladesh Shilpa Bank and the Bangladesh Shilpa Rin Sangstha, which resulted in the formation of BDBL.

"I believe this United Islamic Bank, once merged, will become another burden for the country within a few years, and there are many reasons for this," Sarkar cautioned. He cited the example of BASIC Bank, which thrived under bureaucratic management but went into "ICU" status after coming under political leadership.

Using public funds for bailouts

Toufic Ahmad Choudhury, former director general of the Bangladesh Institute of Bank Management, emphasised that globally, mergers usually involve a good bank absorbing a bad one, or good banks merging with other good banks.

He stressed that the current policy of using public funds to "bail out" private banks is incorrect. "Private banks should fix their own financial condition. This is the natural order," he stated.

Toufic further said, "Providing government money to develop private banks or give opportunities to damaged banks is a wrong policy. Competition must run freely in the banking sector. Banks that cannot survive will naturally be eliminated from the market."

He argued that there is no justification for keeping troubled banks afloat with state funds.

Policy incoherence and service gaps

Daulat Akter Mala, president of the Economic Reporters Forum, noted the long-standing issue of Bangladesh's Monetary Policy being politically influenced or biased, lacking coordination with the fiscal policy.

"The government is increasing taxes on various goods to raise revenue on one hand, and on the other, trying to control inflation through monetary policy – this creates a contradictory situation," she said, calling for stronger media engagement to overcome policy inconsistencies.

Mohammad Abdul Mannan, chairman of First Security Islami Bank, highlighted a service delivery flaw in the merging entities. He pointed out that out of 450 upazilas, the five merging banks collectively do not have branches in 300 of them.

"This means they have only provided service delivery in areas where wealthy people reside or where deposit and investment opportunities are higher," Mannan stated. He added that the authorities must specifically address the issues that caused past mergers and state-owned institutions to fail.

Other speakers at the roundtable included Md Kabir Ahmad, deputy governor of Bangladesh Bank; Ahsan Ullah, executive director and adviser to the governor of Bangladesh Bank; Faruq Moinuddin, vice-chairperson of BRAC Bank; and Md Abdul Latif, deputy managing director of Citizens Bank. It was anchored by Shahidul Islam Zaheed, chairman of the Department of Banking and Insurance at Dhaka University.