Merger or closure only way-out for troubled banks

Editorial Desk :

Country’s leading economists have suggested that merger or acquisition of weak banks has become necessary to bail out the banking sector amid the Covid-19 pandemic. Some experts however have also argued that Bangladesh should adopt an exit policy for banks where weak banks would automatically leave the market.

For this, they said the government’s will is a must. But the government might not force the weak banks to merge as it has issued licenses in their favour on political grounds. It did not merge a former ruling party minister’s Farmers Bank with other banks; rather it gave life to the sick bank by injecting funds. It has been renamed Padma Bank.

According to a news report published in a national daily on Sunday, a number of banks have been trying to address non-performing loans and the associated capital challenges for a long time. Still nobody knows the actual status of the banks. Their condition will be known after the end of the current moratorium period.

The state-run Sonali, Janata, Agrani and Rupali banks have also been hit by big loan scams and are being recapitalised with taxpayers’ money. Now this ‘disease’ has spread to private banks, like the Farmers Bank that was failing even to pay off depositors’ money. BASIC Bank, once a healthy state-owned bank, is now all but destroyed allegedly at the instance of a former chairman of the bank.

As an important component of the country’s financial system, the banking sector has become notorious in financial crisis and irregularities in recent years. The confidence and trust of the investors have eroded by several massive hits from some banks.

Surprisingly, many borrowers are willful defaulters. Big borrowers of Tk 500 crore and above have been given extra benefits in the name of restructuring their loans. Many of them have again become defaulters and are lobbying hard to reschedule their loans again.

To improve the performance of the banking sector, appropriate measures must be taken by different regulatory authorities to remove their inherent weaknesses. Strengthening the governance practices and punishment of involved persons with irregularities, could improve the situation.