Merger plan for five Islamic banks gets clearance

The Bangladesh Bank (BB) yesterday approved the merger of five struggling Shariah-based banks, in a decisive move to stabilise the financial sector and rescue the lenders from deepening crises.

The central bank also sanctioned the appointment of temporary administrative teams at these banks—namely First Security Islami Bank, Social Islami Bank, Global Islami Bank, Union Bank, and EXIM Bank—under the Bank Resolution Ordinance, 2025.

The approval came at a special meeting of the BB's board chaired by Governor Ahsan H Mansur.

Speaking at the meeting, Areif Hossain Khan, executive director and spokesperson of the BB, said the five banks are now officially under the merger process, which is expected to take at least two years to complete.

Under the ordinance, the central bank will deploy temporary administrative teams at each bank, Khan said, adding that the teams will not immediately replace the existing management.

"For instance, it should not be assumed that once BB's team enters, the managing directors will immediately be removed," he explained.

"The existing management will continue to operate. At the same time, a team of probably five members will work in each bank, consisting of Bangladesh Bank's administrative representatives, who will always coordinate with the central taskforce," he added.

However, in the long run, the existing boards will gradually become inactive. "Not dissolved but rendered non-functional. Once a bank's merger is complete, its board will automatically be absorbed and abolished. Until then, the boards will remain, though they will not be effective."

The merger, initiated by the interim government, aims to create Bangladesh's largest state-owned Shariah-compliant bank. The new institution, yet to be named, will require an estimated Tk 35,200 crore in capital, of which Tk 20,200 crore will come from the government and Tk 15,000 crore from institutional funds and the conversion of institutional deposits.

The decision follows forensic audits conducted by global accounting firms commissioned by the government, which exposed severe financial irregularities in the banks, including high levels of non-performing loans.

Three of the banks had non-performing loan ratios exceeding 90 percent, highlighting the urgent need for intervention.

Prior to the merger approval, the BB had dissolved the banks' previous boards following the political transition in August 2024 and appointed new members to ensure stability. Going forward, operations will be carried out jointly by the current management and the BB-appointed administrative teams under guidance from the central task force.

Khan said operations of the banks will be carried out jointly by the current management and the administrative teams assigned by the BB, guided by the BB's task force.

As per the resolution ordinance, the central bank is empowered to appoint administrators to implement the resolution process, replace key management personnel if necessary, and take all measures required to achieve the objectives of the merger.

The Bank Companies Act, 1991, also grants the BB authority to replace the key management personnel of a bank under temporary administration or temporarily discharge the functions of the chairman, director, or chief executive officer of a bank.

BB can also determine the powers of the temporary administrators and define the roles and functions of the administrators and associated teams to be engaged at the banks.

GOVT REPRESENTATIVE ON BB BOARD LIKELY

In a related development, the BB yesterday approved the inclusion of a provision in the final draft of the Bangladesh Bank Ordinance (Amendment) 2025 that allows a government representative on its board.

In the initial draft of the ordinance, which seeks to amend the BB Order 1972, the central bank sought to scrap the scope for the appointment of government officials to its board so that it could play its autonomous role without influence.

The decision marks a partial reversal, retaining one bureaucrat on the board while still allowing the BB to operate independently.

BB spokesperson Khan said discussions were held about the amendment of the Bangladesh Bank Order. However, he did not share the details of the discussion. "It was only mentioned that there were detailed discussions on many points, and, in the end, a consensus was reached."

Now, this draft amendment order will be sent to the Advisory Council, he added.