Shareholders face uncertainty over Islamic banks’ merger

Bangladesh's banking sector is entering a historic transformation as five Shariah-based private commercial banks prepare to merge into a single state-owned Islamic bank. The institutions under consideration are First Security Islami Bank, Global Islami Bank, Union Bank, Social Islami Bank and EXIM Bank. Backed by the Bangladesh Bank, the merger aims to restore confidence in Islamic banking, improve governance and strengthen financial stability. Yet for shareholders, one question remains: what will happen to their investments?

As of September 23, this year, the stock market tells a bleak story. First Security Islami Bank is trading at Tk 1.9, Global Islami Bank at Tk 1.5, Union Bank at Tk 1.6, Social Islami Bank at Tk 3.3 and EXIM Bank at Tk 2.9. Each share has a face value of Tk 10, but they now trade at a fraction of that. Investors have already suffered losses of 70 to 85 percent. Against this backdrop, the merger announcement has deepened uncertainty, as shareholders still do not know how their investments will be treated once consolidation is complete.

The central bank is leading the merger due to concerns over non-performing loans, scams and weak governance under political influence. Yet one crucial issue has been overlooked: the fate of shareholders. The Bangladesh Securities and Exchange Commission (BSEC), which protects investor interests in listed companies, has so far remained outside the process. There has been no clarity on how share swaps will take place, what the valuation formula will be or how minority investors' rights will be protected. This lack of coordination between the banking and market regulators has left investors in limbo.

In any merger, the share swap ratio determines how existing shareholders' equity converts into the new entity. This depends on the financial health and asset quality of each merging bank. For example, Social Islami Bank, which still trades higher at Tk 3.3, has investors worried their shares will be diluted to absorb weaker banks. Meanwhile, shareholders of Global Islami Bank and Union Bank fear that their already-depressed shares could lose more value once merger terms are set. With no official guidance, speculation has fuelled market volatility.

The risks are serious. Investors may see their holdings converted into fewer shares of the new bank, locking in permanent losses. The merged entity will likely focus on repairing its balance sheet, meaning dividend payouts are unlikely soon. Until clarity emerges on swap ratios and governance, uncertainty will continue to weigh on share prices and erode confidence.

Many analysts argue that the crisis is not only financial but also political. Years of mismanagement, politically driven lending and poor regulatory oversight created the conditions for this drastic intervention. While protecting depositors has been the main goal, the interests of retail shareholders -- ordinary citizens who put their savings into these banks -- have been sidelined. The collapse in share prices to between Tk 1.5 and Tk 3.3 against a Tk 10 face value shows how trust in the system has eroded.

For now, shareholders have little choice but to remain patient. Selling at current levels would mean losses of up to 80 percent, while holding may bring some recovery if the new state-owned Islamic bank eventually regains stability. Pressure is growing on the BSEC to act. Investors should monitor developments closely and be prepared for a long wait before the new entity becomes profitable.

The merger of five Islamic banks is a watershed moment for the country's financial system. Unless the Bangladesh Bank and the BSEC coordinate to ensure fair treatment, shareholders risk becoming the silent losers in a restructuring designed mainly to safeguard depositors. Confidence in the financial system cannot be rebuilt without transparency, and it is this transparency that will determine whether the new bank's shares regain value or remain a graveyard for investor savings.

The writer is a capital market analyst and can be reached at [email protected]