BB to evaluate major banks twice a year

Like a full health checkup, the Bangladesh Bank (BB) will now evaluate the stability of systemically important banks, lenders whose collapse could severely harm the country's financial system and economy, twice a year.

Besides, weaker banks that fall under the Prompt Corrective Action (PCA) framework will be reviewed once a year. The PCA is a set of measures that allows the central bank to step in when a bank shows signs of financial trouble. 

The Bank Resolution Department (BRD) of the BB will conduct these assessments and, if necessary, suggest mergers or closures, according to a new regulation published yesterday. 

The regulation, titled "Regulations for Bank Resolution, 2025" and framed under the "Bank Resolution Ordinance, 2025", also says that an immediate review of the banks alongside the regular ones will be conducted whenever any major change takes place. 

According to the regulations, the central bank will examine several aspects, including how easily key operations can be separated from the rest of the business.

Besides, the availability of funds that can absorb losses, the adequacy of data for quick valuation and recovery, the continuity of essential services, and reliance on third-party providers will also be reviewed. 

The regulations say that when applying resolution tools to Islamic banks, the BRD will follow shariah principles. In the event of a merger, both institutions must be shariah-compliant, have a clear legal basis, and hold proper licences. 

Unless the BRD decides to take direct control of a troubled bank, it will appoint an administrator under Section 16(1)(ka) and Section 20(1) of the Bank Resolution Ordinance-2025. 

The administrator will ensure that when subordinated debt is used as a loss-absorbing measure, Islamic banks employ shariah-based financial instruments.

Similarly, any increase in capital under Section 27 of the ordinance, which mentions capital increase by existing or new shareholders, must exclude conventional subordinated debt and instead rely on shariah-compliant instruments. 

The administrator will work under the BRD's supervision and must follow all its instructions, says the regulations. 

After the political changeover in August last year, the BRD was formed as per the recommendation of the Banking Sector Reform Task Force (BSR-TF). The move came amid growing bad loans, tighter liquidity, and governance issues that had eroded public confidence in the banking sector. 

The department is currently overseeing the merger of five Islamic banks hit hard by irregularities over the past decade.