The Bangladesh Bank on Thursday issued a guideline, specifying the process, requirements and its policy or liquidity support for successful bank mergers.
According to the guideline, the acquiring bank or company cannot terminate transferred employees for three years.
Acquiring bank will prioritise deposit payments and banking transactions for individuals of transferring banks/financial institutions.
For institutional depositors, a payment plan for complete payment within a specified time will be sent to the Bangladesh Bank for approval.
Directors of transferring bank must lose directorship in acquiring bank for at least five years, and senior management up to deputy general manager of the merged bank must not get job in acquiring bank.
Under the guideline, one or more banks or companies can merge with another bank or company. Additionally, a finance company can merge with another bank or finance company.
If a bank fails to merge voluntarily, and if the bank鈥檚 capital deficit, high non-performing loans, liquidity and good governance deficit are ongoing, the Bangladesh Bank will take compulsory amalgamation measures of the bank in accordance with the provisions of section 77A of the Bank Companies Act, 1991.
According to the guideline, when a weak or distressed bank merges with another, the acquiring bank鈥檚 capital, liquidity, non-performing loans and other financial indicators may be affected post-merger, the guideline said.
To ensure stability and protect public interest, the central bank will provide necessary policy supports and monitor the merged entity鈥檚 activities.
For a certain period, exemptions will be granted for maintaining minimum capital conservation, cash reserve ratio, statutory liquidity ratio, liquidity coverage ratio and net stable funding ratio.
A certain period will be given to adjust the total losses of the weak bank with the income of the acquiring bank or to convert it into goodwill.
The Bangladesh Bank may provide liquidity support based on a first-come, first-served basis, offer cash assistance through long-term bond purchases, and support capital enhancement through share issuance, perpetual bond issuance and subordinated bond issuance.
In certain cases, a bank or company, on the basis of compromise/arrangement/negotiation, can take over a specific branch of another, interchange branches between similar institutions, transfer businesses or acquire institutions providing microloans.
Regarding the merger process, banks or finance companies must seek approval from their respective boards and inform the Bangladesh Bank for policy approval.
The central bank will appoint one or more audit firms to conduct due diligence of the transferee and transferor banks or companies, with expenses borne by the Bangladesh Bank.
After completing due diligence, the audit firm will submit a detailed report to the Bangladesh Bank, including details of debts, assets, liabilities, share exchange ratios and the financial impact of the merger/acquisition.
Based on the information obtained through due diligence, the transferring and transferor banks will present their proposed merger scheme to their respective boards for approval, followed by an extraordinary general meeting for shareholder approval.
Valuation of assets will be agreed upon mutually, with the Bangladesh Bank intervening only if the valuation is deemed unfair or unreasonable.
The transfer of assets and liabilities between the acquiring and transferring companies will be based on mutual agreement, ensuring a reasonable and fair valuation. The valuation may include a premium or discount.
In case of failure in mediation, the decision of Bangladesh Bank will be considered final in determining the value of assets or liabilities or resolving the issue, and the relevant parties will be obliged to accept it.
The Bangladesh Bank will provide approval for the proposed merger scheme, including any necessary changes, after its satisfaction. Following this approval, the proposed scheme can be implemented.
After getting consent from the Bangladesh Bank, both banks can apply to the High Court for approval.
On March 17, Exim Bank and Padma Bank announced to be merged voluntarily.
State-owned Bangladesh Development Bank is set to merge with Sonali Bank, while Rajshahi Krishi Unnayan Bank will be merged with Bangladesh Krishi Bank.
This decision was reached during a meeting between Bangladesh Bank governor Abdur Rouf Talukder and the managing directors of the respective banks at the BB headquarters on Wednesday.
