The local corporate sector will greet with scepticism the Finance Minister's recent disclosure that a merger and acquisition (M&A) law is now at the drafting stage. The minister disclosed the information when the newsmen last week sought to know from him about the government's stance on merging two troubled banks -- one in the public sector and another a privately owned one. Authorities have been dragging their feet over making a law to facilitate smooth mergers and acquisitions.
Interestingly, merger or acquisition comes into focus only when the discussion centres on problem-ridden banks or financial institutions. That should not be the case. M&A is a globally practised phenomenon involving transactions worth a large sum of money. In 2019, the global cross-border M&A amounted to $2.4 trillion and $2.2 trillion in 2020. However, in the first half of this year, the M&A deals have surged to an all-time high of $2.6 trillion, compared to $926 billion of the corresponding period of last year. The Covid-19 pandemic has triggered such a record surge in M&A, it seems. A similar surge in M&A was witnessed following the 2008 global financial crisis.
The cases of mergers and acquisitions of financial institutions and business enterprises are also there in Bangladesh. But those have been taking place under existing laws and executive orders. A case in point is the amalgamation of two state-owned development financing institutions (DFIs) -- the Bangladesh Shilpa Bank (BSB) and the Bangladesh Shilpa Rin Sangstha (BSRS) -- to create a new DFI called the Bangladesh Development Bank. Similarly, there has been an acquisition of a large stake of a troubled private bank---Farmers Bank (later, renamed as Padma Bank) --- by three state-owned banks and an investment institution. The acquisition, however, was not voluntary. The government wanted them to do so to keep the bank afloat.
The government needs to enact a modern M&A law to facilitate the takeover of one entity by another through merger or acquisition of stakes in another, keeping the latter intact. As the economy has been expanding, with the private sector acting as the primary engine of growth, the demand for mergers and acquisitions would grow. Besides, there could be a takeover of local firms or acquisition of their stakes by foreign companies. An appropriate M&A law will make things easy for all these developments.
The country's banking sector is not in a good shape. Some banks need resuscitation rather urgently. But the merger of two weak banks would deliver no positive results. A strong local or a foreign bank will not be interested in merging with a weak bank if the latter is too problem-ridden. The M&A may not be the right process for saving the troubled banks or financial institutions. Rather, the policymakers need to devise an appropriate exit policy for those under the prevailing circumstances.