Changes in Bank Resolution Ordinance Allow Former Owners to Reclaim Control

Recent amendments to the Bank Resolution Ordinance provide a legal route for past managers to regain control of banks currently in bankruptcy proceedings.

These changes specifically influence the merger of five struggling banks: First Security Islamic Bank, Social Islamic Bank, Union Bank, Global Islamic Bank, and Export-Import Bank, which were consolidated into Samirit Islamic Bank by the former caretaker government.

Under the new provisions passed by parliament, former owners can apply to the Bangladesh Bank to reacquire their shares, assets, and debts. This process could potentially result in the dissolution of the newly formed entity.

Four of these banks were previously owned by Saiful Alam, a businessman with a controversial reputation, while Nazrul Islam Mazumder controlled Export-Import Bank.

Experts have raised concerns regarding these amendments, indicating that they could undermine the integrity of banking reforms and essentially allow those responsible for the financial troubles to regain control.

Conditions for Recovering Ownership

The government modified the ordinance to include section 18A. This section mandates that applicants wanting to reclaim control must submit a formal undertaking. This involves promising to repay all funds, inject new capital, and restore financial health as determined by the government or central bank.

Moreover, they must settle all debts owed to depositors and creditors, clear any unpaid taxes, and restructure the risk management and compliance framework.

Financial stipulations require an initial payment of at least 7.5% of the total amount owed within three months of approval. The remaining 92.5% has to be settled over two years at a simple interest rate of 10%.

Following approval, the Bangladesh Bank will supervise the bank for two years until a specialized committee completes a compliance review, which could lead to revoking approval if issues arise.

Government’s Justification for “Market Solutions”

Finance Minister Amir Hosr Mahmoud Chaudhry described this initiative as a “market solution” aimed at promoting fairness, equity, and investment protection. He noted that the government has already injected approximately Tk 80,000 into weak banks and pointed out that another Tk 100 million might be needed, which is an unsustainable burden in the current global economic context.

“This arrangement places recapitalization and debt resolution obligations on applicants, reducing pressure on the government and the Deposit Insurance Fund,” the minister remarked.

He also mentioned that this option isn’t limited to former shareholders; it is open to any party deemed suitable by the central bank. The rationale is that keeping the bank operational will preserve asset values and protect jobs.

Experts Voice Concerns Over ‘Trust Erosion’

The amendments have faced strong backlash from experts who were involved in drafting the initial resolution framework. Zahid Hussain, a former chief economist with the World Bank in Dhaka, warned that these changes could erode the credibility of the reform process.

He explained that this effectively provides a clear pathway for former owners whose mismanagement led to the collapse to reclaim control. His estimates indicate that the total payment required for the five merged banks could be as high as Tk 35,000 billion. He expressed worry that the terms are so lenient that former owners could easily manage the initial 7.5% and finance the rest through the banking system.

The Uncertain Future of Samirit Islamic Bank

Zahid noted that the fate of Samirit Islamic Bank now rests entirely with its returning owners. “If they decide to operate the five banks as separate entities again, then the concept of a combined bank will fade away,” he said.

This shift sends a signal to the market that those accountable for financial misconduct can potentially reacquire ownership.