The World Bank said that without assessing asset quality, the forced initiative of bank mergers might be counterproductive.
The World Bank said this at a press conference in its Dhaka office at the launch of "Bangladesh Development Update" on Tuesday.
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“A consolidation process will require careful assessment and prudent implementation of procedures to avoid weakening good banks and acquiring bad banks; an assessment of the asset quality of weak banks will be required,” said the World Bank.
World Bank Country Director for Bangladesh and Bhutan, Abdoulaye Seck, its Chief Economist for South Asia Region, Franziska Ohnsorge, and its Senior Economists, Bernard James Haven and Rangeet Ghosh, spoke at the event.
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The observation comes weeks after Shariah-based Exim Bank agreed to take over the stressed Padma Bank as part of the Bangladesh Bank's plan to rein in the runaway defaulted loans to a reasonable level and bring good governance to the banking sector.
The WB said before initiating any merger processes, detailed guidelines on mergers and acquisitions need to be issued, giving banks a clear idea of the process involved.
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Such guidelines can be based on international best practices and provide alternative merger mechanisms for banks to choose from depending on the status of the banks or non-bank financial institutions deciding to merge.
Bank mergers will also require an evaluation of internal systems, branch networks, staffing levels, the adequacy of management arrangements, impacts on banks' cross-border business, and international risk ratings, a World Bank observation said.