Almost three months after Padma Bank submitted its proposed merger with a state-owned lender, the Bank of Bangladesh said public lenders are now plagued by financial health problems due to a number excessive delinquent loans.
In addition, Bangladesh’s public banks are suffering from a lack of capital, according to the central bank.
Lenders are also feeling the pinch of other shortcomings, including issues that arise from poor operational and management practices.
In this context, the central bank said that attracting foreign capital would be a good option in order to solve Padma Bank’s lack of capital.
The Bangladesh Bank made the remarks in a letter sent to the Ministry of Finance on October 5.
Earlier in September, Padma Bank signed a memorandum of understanding with California-based investment bank DelMorgan & Co to find potential foreign investors.
Padma Bank, formerly Farmers Bank, in July pleaded with the finance ministry for a merger with any state-owned bank in a desperate effort to prevent further deterioration in its financial health.
In the letter, Padma Bank said she has faced many constraints since starting her new journey in 2019, including a severe lack of cash.
It would have succeeded in improving its liquidity status over the next two years and building depositor confidence while continuing the process of regularizing defaulted loans in phases.
The bank’s operating losses amounted to Tk 120 crore in the first half of 2021, resulting from the economic slowdown induced by Covid-19.
The capital shortfall is estimated to be Tk 2,100 crore in June of this year, according to the central bank letter.
On September 29, Finance Minister AHM Mustafa Kamal said the government could allow Padma Bank to merge with a state bank.
“Of course we can do it,” Kamal said, answering reporters’ questions that day.