Bangladesh Bank Dissolves Board to Merge Five Islamic Banks

Bangladesh Bank has taken the significant step of dissolving its board of directors as part of a plan to merge five smaller Sharia-compliant banks into a single, larger Islamic banking institution.

The central bank conveyed this decision in a notice to the managing directors of the affected banks and mentioned that the merger process will be overseen directly by the regulator.

A senior official from Bangladesh Bank indicated that the name of the interim administrator, who will guide the newly combined entity, will be revealed at a press conference led by the central bank governor at 4 p.m.

The five banks affected by this decision include First Security Islam, Global Islam, Union, Social Islam, and EXIM.

Interestingly, during the tenure of the Awami League government, four of these banks were reportedly under the control of S. Alam Group, a well-known conglomerate based in Chattogram, which has been scrutinized for its influence over several financial institutions. The fifth bank was linked to businessman Nazrul Islam Mazumder, who chairs the Nassa Group.

These banks have faced ongoing financial challenges, reportedly losing hundreds of billions of taka to fraudulent activities and unsustainable loan practices.

In September, the Bangladesh Bank Board approved a proposal to consolidate these financial institutions, aiming to create the country’s largest bank by assets, projected at around Tk 2.2 billion.

Upon completion of this merger, the new bank is expected to be a significant player in the financial landscape, potentially rivaling Islamic Bank Bangladesh PLC, which currently holds the title of market leader in Islamic finance.

Bangladesh Bank has already conducted an asset quality review (AQR) of these five banks through a global auditing firm, as a necessary precursor to the merger. The results indicated troubling non-performing loans, ranging from 49% to as high as 98.5%.

All five banks are coping with significant capital and provision deficits, complicating any prospects for recovery.

According to a draft outline from the central bank, the total cost of the merger is estimated at Tk 3,500 billion. The government is expected to cover Tk 20,000 billion of this amount, which ultimately comes from taxpayers.

An additional Tk 10,000 billion is planned to be sourced from the Deposit Insurance Fund, pending necessary legal changes to allow it to be used as loans. The remaining Tk 500 billion is anticipated to be financed by multilateral institutions like the IMF, World Bank, and ADB as part of a broader reform initiative in the financial sector.

It’s worth noting that even external lending will need to be paid back, implicating taxpayers in this financial strategy.

According to the draft proposal, small savers will have early access to their funds to maintain trust, but larger deposits from institutions, such as companies and government entities, will be converted into shares in the new banking entity.