It says a financial institution (leasing and investment company) might be merged either with a company alike or a bank, but in the case of banks merely a bank-to-bank merger is allowed.

Before activating any merger, the intending institution should obtain approvals from both the central bank and High Court, according to the guideline.

BB Governor Salehuddin Ahmed told reporters that besides reinvigorating the banking sector, they are looking forward to raising the capital of banks and financial institutions.

"Merger of companies is an usual practice all over the world, but we didn't have any guideline before to serve this purpose," he said.

The central bank chief said as per the suggestions put forward by the stakeholders like banks and financial institutions, the guideline has been formulated taking future of the sector into consideration.

The guideline will also be applied in acquisition of certain branches, swapping of branches between two similar institutions, transfer of certain business to another bank or financial institution under a compromise or arrangement reached with another bank or financial institution.

In order to enable the Bangladesh Bank to consider effectiveness of any merger of banking companies or financial institutions, the transferee company will have to seek prior clearance or approval in relation to commencement of the financial and legal due-diligence of itself and also of that part of the business of the transferor banking company or financial institution which is sought to be taken over or of the whole transferor company, if merger is intended.

The transferee company will be required to submit an application to the central bank with a draft of the proposed scheme for any reconstruction, merger or amalgamation.

The transferor and the transferee companies will have to mutually agree to valuation of the assets, the guideline said, adding that the transaction cost will be mutually agreed between the transferor and transferee on the basis of fair valuation of assets and liabilities proposed to be transferred.

The Bangladesh Bank shall, however, have the right to be satisfied that the price mutually agreed upon is fair and reasonable and for this purpose may ask for a pricing rationale to examine the same and accept or suggest modification.

After the BB clearance, the transferor and transferee companies will move the scheme to the High Court for finally activating the merger.

The BB sources said the central bank predicts weak financial conditions of a number of private banks in near future, like that of the Oriental Bank.

"To avoid any disaster, the guideline will provide the opportunity for merger of such problem banks with banks and financial institutions which have strong business," a BB official said.

He said the central bank is going to introduce and implement international standard of banking business in Bangladesh.

"The central bank has already taken an initiative to raise individual bank capital to Tk 200 crore from Tk 100 crore," he said. "Small and problem banks will get the opportunity to be merged with other banking companies under the new guideline that will eventually increase the bank's capital," he added.