Kamal hints at merger of Padma with state bank

The government might allow Padma Bank to merge with a state bank as the beleaguered lender is desperately trying to avoid a complete collapse. 

"Of course, we may do it," said Finance Minister AHM Mustafa Kamal while responding to queries from reporters.

"Once the law [the Merger Act] is enacted, we will definitely think about the issue."

He was addressing a virtual press briefing after a scheduled meeting of the cabinet committee on government purchase.

The remark from the finance minister comes nearly two months after Padma Bank, erstwhile Farmers Bank, pleaded with the finance ministry to merge it with a state-run bank in its desperate effort to avoid further deterioration of its financial health.

An economist yesterday opposed the idea, saying any merger will set a bad example of bailing out a financial institution that has suffered irregularities with taxpayers' money.

Around three years ago, the government rescued the lender from collapse in the wake of massive financial irregularities.

Five state-run financial institutions, namely Investment Corporation of Bangladesh, Sonali Bank, Janata Bank, Agrani Bank and Rupali Bank, injected Tk 715 crore into the bank to acquire 60 per cent of its stakes.

In a letter last month, Padma Bank said it faced a lot of constraints since the start of its new journey in 2019, including a severe shortfall of liquidity.

It said to have managed to improve its liquidity status over the next two years and grow confidence among depositors while continuing the process of regularising default loans in phases.

The finance ministry last week sent the application of Padma Bank to the Bangladesh Bank seeking opinion, said sources.

Established in 2013 as Farmers Bank, the lender had fallen prey to scamsters. A Bangladesh Bank investigation found that more than Tk 3,500 crore was siphoned off between 2013 and 2017.

The bank fell in deep trouble after depositors, which included government agencies, started pulling out money as allegations of corruption surfaced against Muhiuddin Khan Alamgir and Md Mahabubul Haque Chisty, the then board chairman and chairman of the audit committee, respectively.

When asked why the government was considering rescuing the bank, Kamal said he had not read the application submitted by the bank yet.

He, however, said: "We all know that there were many irregularities at the bank. But we are yet to know about the complete picture of corruption."

Lawsuits have been filed against those who were initially found to be involved in the irregularities, and many are now in jail.

"What can the government do other than this? The government will take punitive measures against the people involved in irregularities and corruption following due procedures," Kamal said.

Fahmida Khatun, executive director of the Centre for Policy Dialogue, said merging Padma Bank with state lenders would not fetch any positive impact for the financial sector.

"We all know why the private bank is in dire straits. A wide range of financial scams had occurred. As a result, the lender is yet to return to its normal activities," she said.

"The scamsters and corrupt people will feel encouraged if the merger takes place."

Earlier this month, Padma Bank signed a memorandum of understanding with California-based investment bank DelMorgan & Co to find potential foreign investors.

The bank's operating losses stood at Tk 120 crore in the first half of 2021, resulting from the Covid-19-induced economic slowdown.

The capital shortfall would amount to Tk 2,100 crore as of June this year, the bank said.