Riddled with a series of loan scams and plagued by irregularities, Padma Bank has knocked on the door of the government to bail it out in the form of a merger with or an acquisition by a state-owned bank and the Bangladesh Bank is weighing the idea.
Central bank spokesman Serajul Islam on Thursday acknowledged having received the proposal of Padma Bank, formerly The Farmers Bank, via the finance ministry. “Bangladesh Bank has not yet taken a decision on the matter,” he said.
The government approved The Farmers Bank, owned by Muhiuddin Khan Alamgir, an Awami League Presidium member, in 2013. He resigned as chairman following pressure over loan scams and irregularities in 2017.
Chowdhury Nafeez Sarafat, the chairman of RACE Asset Management Ltd who also heads the board of trustees of the Canadian University of Bangladesh, took over as chairman of the bank in early 2018 before it was rechristened Padma Bank the following year apparently to restore its image.
State-owned Sonali Bank, Janata Bank, Agrani Bank, Rupali Bank, and the Investment Corporation of Bangladesh injected into the troubled private bank Tk 7.15 billion, or 66 per cent of its capital, at that time in a move to stop it from going bankrupt.
Struggling to continue operations having been paralysed by a liquidity crisis, the bank now seeks more funds, or merger with or acquisition by a state-owned bank.
Its Managing Director and CEO Ehsan Khasru raised concerns about its future in a letter dated Jul 8 to the Financial Institutions Division of the finance ministry, according to bdnews24.com.
“A plea from Padma Bank regarding restructuring on an emergency basis has reached the finance ministry, but we haven’t yet taken a decision on the matter,” said ABM Ruhul Azad, additional secretary at the Financial Institutions Division.
With more funds for capital adequacy unlikely to come, Khasru described how the private entity is sinking even after getting the government funds, and changes in its ownership, management and name.
He said the bank was trying to turn around with the help, but it is facing a capital crisis as the “banking sector has been greatly damaged” by the coronavirus pandemic.
He says the bank’s expenditures exceed earnings.
Citing its audit report on the accounts of 2020, Khasru added the bank had assets worth Tk 56.22 billion on which interests were payable, while its assets from which income was possible were worth Tk 14.9 billion only.
It led to Tk 1.6 billion operating losses last year, ncluding a margin of Tk 710 million net interests.
The situation worsened further this year, with Tk 1.2 billion operating losses until June.
Such losses are finally bleeding the bank’s capital.
If the situation continues, Khasru warned in the letter, its shareholder equity will drop below Tk 1.0 billion by the end of 2021 from Tk 3.32 billion last year and Tk 4.87 billion in 2019.
Shareholder equity is the owners' residual claim on assets after debts have been paid.
Banks need to preserve a ratio of its capital set by the central bank. Padma Bank was Tk 21 billion shy of capital adequacy as of June.
In the current circumstances, the letter said, the bank urgently needs Tk 24 billion, which can come through issuance of preferential share and additional subordinate bond.
Khasru said state-owned banks and financial institutions can provide Tk 18 billion through preferential share and the rest, Tk 6.0 billion, can be made available through additional subordinate bond.
Noting that getting funds in this way is a lengthy and complex process, Padma Bank sought acquisition by or merger with the state-owned banks that had provided it with funds earlier on the government’s orders.
If they do not agree, Padma Bank is open to merge or be bought by other government banks, such as Bangladesh Development Bank Limited.
Khasru did not take calls or respond to messages for comments.
The state-owned banks said they were in the dark about the development. “We haven’t received a letter on merger with or acquisition of Padma Bank. We are unaware of the matter. We haven’t discussed it in board meetings,” said Md Ataur Rahman Prodhan, managing director of Sonali Bank.
“The finance ministry forwarded the proposal to us. We will take a decision after analysing the matter. We are not thinking about it immediately,” said Bangladesh Bank’s Serajul.
