NDB and DFCC boards decide to abandon merger
NDB Bank PLC and DFCC Bank PLC which were supposed to merge under the Central Bank’s financial sector consolidation are to abandon the plan, officials said.
A DFCC official told Business Times that at their recent board meeting, the directors decided not to go ahead with it.
“We were awaiting an indication on the government’s stance on this matter and after the releasing of the report by the committee headed by Dinesh Weerakkody examining the consolidation process of the financial sector, we have decided against merging,” the official said.
An NDB official confirmed that at a recent board meeting the bank has decided not to merge with DFCC. “The report of the banking sector which was presented to Prime Minister Ranil Wickremesinghe recently has advised against forced mergers of banks and we have decided not to go ahead with this merger,” the NDB official said.
When asked whether the DFCC and NDB merger was a forced one (initiated by the previous regime), he said that the decision to consolidate wasn’t their idea and that it was mooted by the Central Bank (CB) during the previous regime.
Immediately after the regime change both parties were awaiting the government’s stance on the proposed merger. The state entities collectively own over 30 per cent in each bank.
“When banks consolidate voluntarily, they take necessary measures to protect their own interests and they would not participate in any Merger or Acquisition unless it is driven to benefit all stakeholders,” the report revealed.
According to this report, the involvement of the state in private sector banks must be reduced either through the application of the same aggregated shareholder limits as applicable to private shareholders or by placing a cap on aggregate voting rights to promote good governance and stability within the private sector banks.
The report added that the government should create an environment for voluntary consolidation of banks by providing the required legal framework and removing impediments and disincentives. It has advocated that the involvement of the state in private sector banks must be reduced either through the application of the same aggregated shareholder limits as applicable to private shareholders or by placing a cap on aggregate voting rights.