Bank Insolvency Law of 2026: A Controversial Shift
The newly passed Bank Insolvency Law of 2026 allows former owners to regain control of merging banks under relatively straightforward terms. This shift has raised eyebrows and is seen by many as a step back from the interim government’s previous banking reforms.
According to the Act, former directors or owners can reclaim their banks by paying an upfront fee of 7.5% of the funds supplied by the government or Bangladesh Bank. The remaining 92.5% is payable within two years at a 10% simple interest rate.
“This law appears to reward those responsible for the crisis rather than hold them accountable.”
— Zahid Hussain, former Chief Economist of the World Bank Dhaka Office
In May 2025, the interim government initiated reforms by approving the Bank Resolution Ordinance 2025, merging five struggling Sharia-based private banks into a state-owned entity called Somilito Islamic Bank. These banks include First Security Islamic Bank, Social Islamic Bank, Union Bank, Global Islamic Bank, and Export-Import Bank.
The government and Bangladesh Bank injected Tk 35,000 billion in capital into these banks, along with additional liquidity support. Previously, many former owners were barred from being involved due to allegations of financial misconduct.
The boards of four of these banks are now largely controlled by the S. Alam Group, while Export-Import Bank is overseen by the Nassa Group.
Recently, the BNP-led government amended the ordinance and—with Finance Minister Amir Khosr Mahmood Chaudhry introducing it—passed the bill in Parliament. However, concerns linger among Bangladesh Bank officials about the future operation of these banks if their former owners are reinstated, particularly regarding depositors’ ability to recover their funds.
Officials have voiced skepticism about the practicality of returning the banks to their previous owners, noting that this might disrupt the ongoing merger process and regulatory compliance.
The new law permits Bangladesh Bank to allow prior owners or eligible applicants to acquire the bank’s shares, assets, and liabilities. Applicants must agree to fully repay all prior financial support as well as inject new capital to rebuild financial stability while settling claims made by depositors and creditors.
Regarding accountability, the law stipulates that those who suffered losses must receive compensation. Moreover, applicants face restrictions on share transfers and must commit to enhancing governance and compliance practices.
Bangladesh Bank is required to conduct due diligence and seek government approval before granting ownership. Even post-approval, the central bank will monitor the merged entity for two years through a special compliance committee.
Failure to meet the specified conditions could lead to the withdrawal of approval and further regulatory actions. Zahid Hussain expressed concerns that the new law might undermine previous reform efforts, suggesting that restoring previous owners could compromise the integrity of the newly merged entity. He highlighted that many loans from these banks were already in distress, mostly linked to related parties.
He worried that allowing the previous owners back would send a detrimental message about accountability in the financial sector, stating that it could reinforce a culture of impunity. He cautioned that if these reforms can easily be reversed through legal changes, it raises serious doubts about the sustainability of future organizational reforms.
In his view, the law seems to favor those who contributed to the crisis rather than impose any accountability.
