Bank Mergers in Bangladesh: Causes, Process, and Economic Impact

A bank merger occurs when two or more banks combine to form a single, stronger financial institution. The main goal of a merger is to improve efficiency, reduce operational costs, and enhance competitiveness in the banking industry. In Bangladesh, the concept of bank mergers has gained importance in recent years due to the need for financial stability, improved governance, and stronger capital bases.

With more than 60 banks operating in a relatively small economy, Bangladesh’s central bank, Bangladesh Bank, has been encouraging voluntary and strategic mergers to reduce unhealthy competition and improve financial health.

What is a Bank Merger?

A bank merger is the combination of two or more banks into one institution, where one bank absorbs another or both cease to exist and form a new bank.

Key Objectives of Bank Mergers

To strengthen the banking system.
To enhance capital adequacy and liquidity.
To reduce non-performing loans (NPLs).
To increase profitability and competitiveness.
To achieve better governance and management efficiency.

Causes of Bank Mergers in Bangladesh

Several factors have driven the recent discussions and plans for bank mergers in Bangladesh:

1. High Number of Banks

Bangladesh currently has over 60 scheduled banks, which is quite high compared to the size of its economy. Many of these banks have overlapping services, leading to excessive competition and reduced profitability.

2. Weak Financial Health

A number of small and newly established banks face liquidity crises, high non-performing loans (NPLs), and poor management performance, forcing them to look for stronger partners.

3. Regulatory Pressure

The Bangladesh Bank and the Ministry of Finance have been encouraging mergers to ensure stability and prevent bank collapses.

4. Need for Capital Strengthening

Due to Basel III compliance, banks need to maintain a higher Capital Adequacy Ratio (CAR), which smaller banks struggle to achieve.

5. Digital Transformation & Cost Efficiency

The rise of digital banking requires huge investments in technology. Merging allows banks to share resources and reduce operational costs.

6. Improving Customer Confidence

Mergers can restore public trust in struggling banks by associating them with more reputable and financially strong institutions.

Types of Bank Mergers

Voluntary Merger: Both banks agree to merge for mutual benefit.
Forced or Regulatory Merger: Initiated by Bangladesh Bank to protect depositors and financial stability.
Horizontal Merger: Between banks offering similar services.
Vertical Merger: Between banks or financial institutions offering complementary services.
Conglomerate Merger: Between unrelated banking and financial entities.

Advantages of Bank Mergers

For Banks

Improved financial strength and capital base.
Increased market share and customer base.
Reduced operational costs and duplication of services.
Better risk management and diversification.
Enhanced technological and digital capabilities.

For Customers

Access to better and wider banking services.
Increased ATM and branch network.
Improved digital and online banking facilities.
Greater financial stability and security.

Disadvantages of Bank Mergers

For Banks

Cultural and management conflicts.
Integration challenges in systems and staff.
Temporary loss of productivity during the merger phase.
Possible layoffs or branch closures.

For Customers

Reduced personalized service due to larger scale operations.
Possible confusion with new account numbers or policies.
In some cases, increased service charges or reduced branch presence.

Initial Discussion and Proposal
Banks explore potential merger opportunities and negotiate terms.
Due Diligence
Financial, legal, and operational audits are conducted to assess each bank’s health.
Valuation and Share Exchange Ratio
Experts determine the relative value of each bank and propose a fair share exchange ratio.
Approval from Boards of Directors
The boards of the merging banks must formally approve the merger plan.
Regulatory Approval from Bangladesh Bank
The central bank examines financial soundness and compliance with relevant laws.
Approval from Ministry of Finance
Government approval is needed for large-scale mergers affecting public interest.
Public Announcement and Shareholder Approval
The merger details are disclosed to shareholders for final consent.
Integration and Implementation
IT systems, HR, branch networks, and brand identities are merged.
Post-Merger Review
Continuous monitoring to ensure smooth functioning and synergy realization.

Economic Impact of Bank Mergers in Bangladesh

1. Strengthened Banking Sector

Mergers create larger, more stable banks capable of withstanding financial shocks.

2. Reduction in Non-Performing Loans

Consolidation helps clean up balance sheets and reduce NPL ratios.

3. Enhanced Efficiency

Merged entities can operate with reduced costs and improved productivity.

4. Financial Inclusion

A stronger banking network can reach rural and underbanked populations more effectively.

5. Investor Confidence

Improved governance and profitability attract more foreign investment.

6. Reduced Burden on Bangladesh Bank

Fewer, stronger banks make supervision easier and more effective.

Examples of Bank Mergers in Bangladesh

Exim Bank and Padma Bank (Proposed) – A merger under discussion as part of Bangladesh Bank’s reform plan.
United Commercial Bank and National Bank (Possible Future Merger) – Talks about stabilizing weak banks.
IFIC Bank’s Expansion – IFIC absorbed some smaller operations for consolidation.
State-Owned Banks Consolidation (Proposed) – Possible merger among Sonali, Janata, and Agrani Banks in the long term.

Challenges in Bank Mergers

Legal complexities and approval delays.
Valuation disputes between merging banks.
Job insecurity among employees.
Public confusion and transition challenges.
Difficulty integrating IT systems and corporate cultures.

Future Outlook

Bangladesh’s banking industry is gradually moving toward consolidation. The Bangladesh Bank has prepared guidelines to facilitate voluntary mergers, focusing on fairness, transparency, and depositor protection. Over the next decade, experts predict the total number of banks may reduce from over 60 to around 40, making the sector stronger and more competitive.

Conclusion

Bank mergers in Bangladesh are not just a financial strategy—they are a national necessity for maintaining economic stability, improving governance, and ensuring sustainable growth. While challenges remain, the long-term benefits for customers, banks, and the economy are significant. With proper regulation and transparency, mergers can transform the Bangladeshi banking system into a more resilient and globally competitive sector.