Shariah bank depositors to wait up to 5 years for payout

Key points-

• Protected deposits up to Tk2 lakh immediate
• Larger deposits repaid gradually over years
• Institutional funds converted into equity shares
• Government to privatise merged bank gradually

Individual depositors of five troubled shariah-based banks set to merge will receive their repayments within six months to a maximum of five years.

The Bangladesh Bank (BB) has drawn up a detailed roadmap outlining specific timelines for the repayment process, officials said.

This will be announced soon through an official gazette, with the repayment schedule taking effect from the date mentioned in it. A draft of that gazette has already been prepared.

Savings up to Tk 2 lakh, which will be treated as protected deposits, will require no wait and be paid immediately after the merger.

On October 9, the advisory council approved the merger of five Islamic lenders to form a new state-owned bank. The banks to be merged are First Security Islami Bank, Union Bank, Global Islami Bank, Social Islami Bank and Exim Bank.

The repayment schedule for individual depositors will be divided into two categories, according to the draft of the official circular. In it, central bank officials said depositor repayments get the highest priority, as public confidence in the banking sector depends on it.

For current and savings accounts, excluding deposits of three months or more, up to Tk 2 lakh will be treated as protected deposits and repaid first. These payments will be made at any time after the effective date mentioned in the gazette.

Larger deposits will be repaid in six instalments of Tk 1 lakh each, between six and 24 months after the effective date. Any remaining balance will be repaid at any time after 24 months.

For deposits of three months or longer, up to Tk 2 lakh will also be considered protected and can be withdrawn at any time once the circular takes effect.

Three-month fixed deposits will be renewed automatically three times before becoming payable.

Six-month deposits will be renewed twice, while one-year deposits will also be renewed twice before being eligible for repayment.

Two-year deposits will automatically convert into three-year terms, three-year deposits into four, and four-year deposits into five. Deposits with a five-year term or longer will be payable upon maturity.

According to the draft circular, people aged over 65 and those diagnosed with cancer will be exempt from these conditions.

Depositors will be allowed to access up to 30 percent of their outstanding balance as investment or loan facilities. From the effective date of the gazette, deposits will earn profit at market rates.

For institutional depositors such as banks, financial institutions, government, semi-government and autonomous bodies, priority shares will be issued against their net liabilities after settling the value of shares in the newly merged bank.

These shares will carry the applicable bank profit rate.

Other institutional depositors will also receive shares on the same terms. They must hold the shares for at least five years, after which they will be converted back into term deposits.

Educational institutions, hospitals, and provident or gratuity funds for officials and employees will remain outside the scheme.

Two names have been proposed for the new bank – "United Islami Bank Limited" and "Sammilito Islami Bank Limited".

Under the merger process, all assets and liabilities of the five banks will be combined into the new lender. All five lenders are listed on the stock exchange.

Forensic audits by international accounting firms earlier this year found that non-performing loans (NPLs) made up 96.37 percent of total loans at First Security Islami Bank, 97.8 percent at Union Bank, 95 percent at Global Islami Bank, 62.3 percent at Social Islami Bank and 48.2 percent at Exim Bank.

As of May this year, combined deposits at these banks stood at more than Tk 1.36 lakh crore, according to BB data.

Once merged, the new bank will have an authorised capital of Tk 40,000 crore, with a paid-up capital requirement of Tk 35,000 crore.

As per the preliminary capital plan, around Tk 15,000 crore in institutional deposits could be converted into equity through a bail-in process. The government will provide the remaining Tk 20,000 crore as capital support, injecting Tk 10,000 crore in cash and raising another Tk 10,000 crore through Sukuk  -- shariah-compliant financial instruments similar to bonds.

STAFF TO BE TRANSFERRED TO NEW BANK

The future of officers and employees of the merged banks has been outlined in the draft circular.

According to it, the jobs of officials and staff of the five banks will be transferred to the new bank, except for those facing complaints or cases. Their service continuity will remain intact.

However, the board of the new bank, with approval from the BB, will have the authority to reassign or restructure positions for those continuing their employment.

Anyone who does not wish to stay may resign and receive all benefits under existing rules. Employees found guilty of fraud may be dismissed without further explanation.

The board of the new bank will have nine directors, five appointed by the central bank and four nominated by the majority shareholders. The directors will serve a one-year term.

At the beginning, the Finance Division will hold ownership of the new bank on behalf of the government. The stake will gradually be transferred to the private sector.

According to the government plan, the bank will bring in a strategic partner within three years and is expected to be fully privatised within five years.