Explainer: What Exim and Padma banks have to do to execute their merger

In global finance, mergers and acquisitions have become commonplace occurrences. However, in Bangladesh, such events are rare, particularly within the banking sector.

Looking back, there have been a couple of restructuring in Bangladesh's banks over the years. In the early 1990s, following the collapse of BCCI Bank, it underwent restructuring and emerged as EBL, a successful event in the country's banking sector. Then, in 2008, Oriental Bank became ICB Islamic Bank.

Now, Shariah-based Exim Bank inked a Memorandum of Understanding (MoU) with the financially beleaguered Padma Bank on 18 March, with top central bank officials, including the governor, in attendance.

Following the MoU signing, there were talks that Padma Bank would henceforth operate under the umbrella of Exim Bank, providing depositors seamless access to their funds through the latter.

Also, it was said that Exim Bank would assume full responsibility for Padma Bank's liabilities, committing to settle all outstanding debts. But the question is: when?

Central bank officials have indicated that the merger process entails a timeline of 12 to 18 months and some others say it may take up to 30 months for completion, owing to the multitude of intricate steps involved.

Firstly, both banks must conduct detailed assessments of each other's financial health, operations, assets, liabilities, and associated risks to ensure alignment and mitigate potential issues. Auditors need a few months to carry out these works, according to a senior Padma Bank official.

Subsequently, negotiations between the boards and management teams of both entities will determine terms such as share exchange ratios, valuation, and organisational structure.

Thirdly, regulatory approvals must be obtained from pertinent bodies, including the Bangladesh Bank and the stock market regulator as Exim Bank is a listed company.

Shareholders of both banks will then vote on the proposed merger, with a minimum threshold of 75% shareholder approval required for progression. Also, creditors' approval is needed.

Upon securing shareholder assent, the parties will seek approval from the High Court before executing the merger. Comprehensive integration plans encompassing systems, operations, technology, products, services, and human resources must be meticulously crafted before implementation.

Finally, the merger will be executed by the agreed-upon terms. The entire process is anticipated to span at least 12 to 18 months, concluding in the transfer of Padma Bank's assets and liabilities to Exim Bank.