Merging bank top execs cannot hold posts at acquiring entity

Bangladesh Bank issued new guidelines on Thursday, dictating that board members and top executives of banks and financial institutions undergoing a merger will not be eligible to occupy positions within the acquiring entity. 

These guidelines accommodate both consensual and compulsory mergers, emphasising the protection of depositors by either continuing their accounts in the merged entity or refunding their deposits.

This directive arrives four months after the introduction of the Prompt Corrective Action (PCA) framework, aimed at providing a structured approach for mergers and acquisitions amid the declining financial health of certain banks and financial institutions.

A notable provision in the guidelines is the job security offered to employees of the merged entity, prohibiting their dismissal for three years post-merger by the acquiring company.

Initially, under the PCA, Bangladesh Bank will categorise banks into four groups based on their loan disbursement, profitability, and other key metrics. It will then instruct underperforming banks to enhance their operations within a 12-month period.

Should these banks fail to ameliorate their condition and persist in vulnerability, the central bank will recommend voluntary mergers with other banks or financial institutions to safeguard the financial system's integrity.