Bank-Insurance
Exim Bank, Padma Bank to Merge, Forming Single Entity
Exim Bank has decided to merge with Padma Bank Limited to form a single entity, confirmed a source at the bank’s board meeting. The decision was made this morning at Exim Bank’s board meeting, where it was also decided to hold a press conference on Monday regarding the merger. This will mark the first voluntary merger in the country, distinguishing it from previous mergers. A Memorandum of Understanding will be signed between the two banks on Monday, with the Bangladesh Bank governor and ABB present at the signing. The Padma Bank name will cease to exist, and the new single entity will be named Exim Bank.
A source from the meeting also disclosed that the Bangladesh Securities and Exchange Commission (BSEC) had been informed, although BSEC top officials claimed to have not received any letter regarding the matter. Notably, while Exim Bank is listed on the stock market, Padma Bank is not.
Chowdhury Nafeez Sarafat, chairman of Padma Bank, resigned on January 31. Following his resignation, state-owned banks, including Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank, and Investment Corporation of Bangladesh, provided a bailout of Tk715 crore to Farmers Bank, in which Padma Bank had invested. However, despite these investments, the bank’s capital erosion continued due to failure in recovering funds from defaulters.
In July 2021, Md Ehsan Khasru, the then-managing director of Padma Bank, submitted a merger or acquisition proposal to the finance ministry due to substantial defaulted loans, deposit repayment inability, and significant losses. Despite the proposal, the merger did not materialize.
Later, in September 2021, Padma Bank announced an agreement with US-based investment bank DelMorgan and Company for a $700 million investment. However, the funds did not materialize, and reports suggest that Padma Bank withheld information about accumulated losses exceeding Tk900 crore from foreign sources.
In February 2023, the Investment Corporation of Bangladesh (ICB) decided to withdraw investments from Padma Bank due to no return on investment in five years. The state-owned investment corporation is now seeking strategic investors to sell its shares in Padma Bank.
In October of the previous year, the parliamentary standing committee on the Ministry of Environment, Forests, and Climate Change directed relevant officials to take necessary actions to recover Tk536 crore, which had been parked as FDR in 2015. Despite failing to repay the FDR, Farmers Bank reportedly obtained an extension of eight additional years from the Ministry of Environment in December 2022 to settle the debt.
As of the conclusion of 2023, Padma Bank’s outstanding loans amounted to Tk5,740 crore, of which Tk3,550 crore were default loans, indicating a limited capacity for the bank to reimburse depositors. Additionally, the bank recorded a capital shortfall of Tk607 crore at the end of September 2023.
The Bangladesh Bank has adjusted the dollar price to Tk117 from Tk110 by introducing the crawling peg exchange rate mechanism.
Under this new approach, the bank will buy and sell dollars with Tk117 as the mid rate.
This decision was reached during a meeting of the monetary policy committee on Wednesday, May 8th.
Additionally, the committee has opted to discontinue the SMART lending rate mechanism, allowing banks to set their lending rates based on dollar demand and supply, according to a circular issued after the meeting.
The crawling peg system permits a currency with a fixed exchange rate to fluctuate within a specified band of rates, combining features of both fixed and floating exchange rate regimes.
On May 5th, Bangladesh Bank Governor Abdur Rouf Talukder announced the adoption of a market-based interest rate and the implementation of a crawling peg system to stabilize the foreign exchange rate.
He stated that the central bank is collaborating with prominent economists and bankers to devise a contractionary monetary policy aimed at curbing inflation and restoring macroeconomic stability.
Earlier, on April 2nd, the World Bank stressed the importance of a crawling peg mechanism aligned with market-clearing exchange rates to narrow the gap between formal and informal exchange rates, as outlined in the latest Bangladesh Development Update report.
Meanwhile, the International Monetary Fund (IMF) has advocated for a market-based dollar rate. In January 2023, the IMF attached several conditions to a $4.7 billion loan facility over a three-and-a-half-year period. Bangladesh has received two installments of the loan by fulfilling nearly all conditions, except for the reserve requirement.
On Sunday (May 5), the Bangladesh Bank (BB) once again dissolved the board of directors of the National Bank.
In a letter addressed to the managing director of the National Bank, the central bank announced the cancellation of the existing board of directors.
Furthermore, the banking regulator established a new board of directors and appointed Khalilur Rahman, the bank’s sponsor director, as the new chairman, according to the BB’s communication.
Mezbaul Haque, spokesperson for the Bangladesh Bank, commented on the development, stating that the action was taken to bolster the bank’s board of directors.
This move comes after a similar action in 2023 when the central bank ordered the dissolution of the National Bank’s board and formed a new one.
Prime Bank PLC has recently received Bancassurance Business commencement approval from Bangladesh Bank.
Mohammad Shahriar Siddiqui, director, BRPD, Bangladesh Bank handed over the approval letter to Nazeem A Choudhury, deputy managing director – consumer banking of Prime Bank PLC, at a ceremony held at Bangladesh Bank recently.
Mohammad Ashfaqur Rahman, additional director, BRPD, Bangladesh Bank, Ashraful Alam, joint director, BRPD, Bangladesh Bank, Miah Mohammad Rabiul Hasan, chief bancassurance officer, Prime Bank PLC were also present at the ceremony.
Bancassurance is a partnership between a bank and insurance company that will allow a Bank to sell insurance products of the insurance company through its distribution channels.
To offer a wide range of products to its customers and ensure best in class service, Prime Bank has partnered with leading insurance companies National Life Insurance Company Ltd. and Reliance Insurance Ltd.
Being one of the leading banks of the country, Prime Bank hopes to cater to the needs of insurance requirements of its customers through Bancassurance, in Bangladesh market.
