Photo : Messenger
At present, the liquidity crisis in the banking sector is increasing in Bangladesh. Most of the banks have become dependent on the central bank, i.e., Bangladesh Bank and the call money market to run their operations. Recently, Bangladesh Bank has been trying to control inflation by increasing the policy rate, which has exacerbated the liquidity crisis. Besides, for a long time, the banks have been buying dollars from interbank platforms and Bangladesh Bank in exchange for Taka to meet the shortage of foreign currency. Apart from this, the attractive interest rates of the government on treasury bonds and bills can also be another reason for the liquidity crisis. In such a situation, banks which are constantly borrowing should be discouraged.
The banking sector, especially the exchange rate and monetary policy, should be reformed. While giving loans, banks should be aware of whether they are giving loans to productive sectors or not, that is, they should choose productive sectors while giving loans. At the same time, supervision of banks should be increased, transparency and accountability should be increased. Apart from this, the amount of debt recovery should also be increased and the recovered loan money should be used to provide new loans to the productive sector. IFM also wants the same. Only then can the banks overcome the liquidity crisis. It is well known that risk management is a very important issue for banks. Banks are responsible for the deposits and savings of the general public. Banks generally manage and regulate risk management under a specific policy framework, which also ensures the protection of investor interests. Only efficient risk management can ensure proper banking services. For this reason, it is important to understand risk culture, risk management, ensure good governance and create separate guidelines in the light of central bank policies.
Economic and financial recovery requires the well-organised performance of the banking sector. In which case the banks have to focus on their own risk management as well as supporting the economic recovery. Nearly every middle-market bank in the industry is looking to either acquire another bank or be acquired, and yours is likely no exception. Many banks see an acquisition or merger as a chance to expand their reach or scale up operations quickly. Yet, a bank acquisition is not without its drawbacks as well – particularly for the unprepared banking executive. There are various benefits of bank mergers and acquisitions, such as scale, efficiency, business gaps filled, talent, and team upgrades, but on the other hand of dangers bank mergers and acquisitions, notably found by the expert, are poor culture fit, not enough commitment, customer impact and Compliance and risk consistency. A bank merger helps an institution scale up quickly and gain a large number of new customers instantly. Not only does an acquisition give your bank more capital to work with when it comes to lending and investments, but it also provides a broader geographic footprint in which to operate. That way, you achieve your growth goals quicker. Acquisitions also scale your bank more efficiently, not just in terms of your efficiency ratio, but also in terms of your banking operations. Every bank has an infrastructure in place for compliance, risk management, accounting, operations and IT, and now that two banks have become one, you’re able to more efficiently consolidate and administer those operational infrastructures.
Financially, a larger bank has a lower aggregated risk profile since a larger number of similar-risk, complimentary loans decreases overall institutional risk.Bank mergers and acquisitions empower your business to fill product or technology gaps. Acquiring a smaller bank that offers a unique revenue model or financial product is sometimes easier than building that business unit from scratch. And, from a technology perspective, being acquired by a larger bank might allow your institution to upgrade its technology platform significantly.While not a factor on the balance sheet, every bank benefits from a merger or acquisition because of the increase in talent at leadership’s disposal. An acquisition presents the possibility of bolstering your sales team or strengthening your team of top managers, and this human element should not be ignored or downplayed. Plenty of prospective bank mergers and acquisitions only look at the two banks on paper without taking their people or culture into account. Failure to assess cultural fit (not just financial fit) is one reason why many bank mergers ultimately fail. Throughout the merger and acquisition process, be sure to thoroughly communicate and double-check that employees are adapting to the change.
Execution risk is another major danger in bank mergers. In some cases, banking executives don’t commit enough time and resources to bringing the two banking platforms together – and the resulting impact on their customers causes the newly merged bank to fail completely. Avoid this mistake by dedicating enough resources for a full integration of the two financial institutions. While undergoing a mergers and acquisitions (M&A) event at your bank, it’s critical that you pay attention to the impact it has on your customers. Especially with smaller community banks, customers often respond very emotionally to a bank acquisition – so it’s essential that you manage customer perception with regular, careful communication. Once the merger or acquisition is fully underway, remember to consider the impact on your customers at every stage: Anything from changing technology platforms to financial products could impact your customers negatively if you don’t pay attention.
A final danger to consider during your next merger or acquisition is the risk and compliance culture of each bank involved. Every financial institution handles banking compliance and federal banking regulations differently, but it’s important that the two merging banks agree on their approach moving forward. When two mismatched risk cultures clash during a bank merger, it negatively affects the profitability of the business down the road if they haven’t come to a working solution. Bank mergers and acquisitions are complex procedures with the possibility of extraordinary payoff or extraordinary peril, so it’s important that you handle your upcoming mergers and acquisitions (M&A), event with care. Keep these benefits and dangers in mind as you combine the processes of each different bank, and you’ll be on your way to a successful merger or acquisition. For this, identifying possible risk factors, preparing for possible infrastructure changes, reforming the methods of credit management risk aspects, reviewing current and potential liquidity management aspects, maximum fair use of incentive packages, taking investment plans to increase liquidity in the economy, maintaining transparency in all activities with regulatory bodies.
Retaining, taking care of the organisation's reputational and financial risks, establishing strong communication systems at all levels and working to build trust and confidence. Bangladesh Bank has taken several important steps in risk management in the banking sector. Bangladesh Bank is taking some more initiatives in this regard. Following this, public and private commercial banks have opened risk management departments in consideration of effective risk management. Board Risk Management Committee, Executive Risk Management Committee and Chief Risk Officer are already functioning. There are risks in all types of bank loans, bankers have to manage them efficiently. However, the first task in risk management is to identify the bankers' risks. An index for risk management needs to be worked out. Risks should be identified, especially in lending. There is no risk avoidance in banking. Rather, efficient risk management is essential. In terms of risk management, the most common practices in the banking sector are the management of credit, interest rate, liquidity, price, foreign exchange, transaction, compliance, strategic and reputational risks.
The writer is a Geneva-based private banking compliance security expert, columnist and poet.
Messenger/Fameema
