Padma Bank PLC, formerly known as Farmers Bank, has been grappling with a prolonged liquidity crisis for over a decade, leading the central bank of Bangladesh to move toward its liquidation. Despite repeated interventions, including a significant capital injection by state-owned financial institutions, the bank has failed to recover, and regulators now see closure as the most viable solution.
The bank’s difficulties reportedly stem from extensive internal mismanagement and irregularities. Sponsors are said to have amassed loans under their own names and via proxy entities, often bypassing regulatory norms. These actions contributed to a severe deterioration of the bank’s financial health, prompting a government-mandated rebranding seven years ago. At that time, Padma Bank received nearly Tk 7,000 crore in investments from state-owned banks and other financial institutions in an attempt to stabilize operations. However, irregularities persisted, and much of the funds were allegedly misappropriated, leading to nonperforming loans exceeding 90 percent of the bank’s portfolio. The bank’s activities gradually halted, intensifying the crisis.
Sources from both Padma Bank and Bangladesh Bank said the issue was the focus of a board meeting with regulators last Thursday. The discussions concluded without a feasible plan to restore the bank’s viability. Following this, Bangladesh Bank made a preliminary decision to liquidate Padma Bank, a move that would mark the first such closure in the country’s banking history.
The proposed liquidation must still be approved by Bangladesh Bank’s board of directors later this month. If authorized, the bank will be closed through the official banking resolution mechanisms. Deposit insurance provisions specify a maximum compensation of Tk 2 lakh for affected account holders.
Arif Hossain Khan, a spokesperson and executive director at Bangladesh Bank, emphasized that the bank’s deep capital shortfall, accumulated losses, and high volume of bad loans have made normal recovery efforts unworkable. Efforts to solicit financial support from the central bank have been rejected, as Padma Bank’s board failed to present a detailed or credible recovery plan. At one point, the bank requested Tk 5,000 crore in assistance, which was not granted.
A deputy governor of Bangladesh Bank, speaking anonymously, described the bank as a “festering sore” that had become an unsustainable burden. Previous attempts to merge Padma Bank with EXIM Bank and Sonali Bank were unsuccessful, and no other institution has shown interest in absorbing it.
According to recent figures from Bangladesh Bank, Padma Bank’s assets currently total approximately Tk 7,000 crore, while its defaulted loans amount to Tk 5,538 crore, underscoring the enormity of its financial distress. With options exhausted, regulators appear resolved to proceed with liquidation to safeguard the broader banking system.