Google Alert – Bangladesh Army
The government’s initiative to merge five weak Shariah-based banks into a larger Islamic bank has run into a series of challenges, including legal complications, and unless these issues are resolved, the merger process risks stalling.
Bangladesh Bank has begun seeking legal solutions on questions such as how administrators will function in the banks, how depositors and stock market shareholders will be protected, and whether the merger can be completed before a political government takes office.
Under the Bank Company Act, if the banks are merged rather than liquidated, depositors must be repaid in full, requiring the government to ensure sufficient funds.
At the same time, the Bangladesh Securities and Exchange Commission (BSEC) rules stipulate that the interests of ordinary investors must be fully safeguarded. As a first step toward the merger, Bangladesh Bank decided on Sept 16 to appoint administrators to the five banks.
Confirming the decision after a special meeting of the central bank’s board of directors, spokesperson Arief Hossain Khan told bdnews24.com: “A decision has been made under the Bank Company Act to merge the five banks. To proceed with the process, the board has now decided to appoint administrators.”
BB SILENT ON NAMES, BUT EVERYONE KNOWS
Although the government plans to merge five Islamic banks into a single new Shariah-based entity, neither Bangladesh Bank nor the Ministry of Finance has formally disclosed their names.
Yet, no one has disputed the names circulating in the media: First Security Islami Bank, Global Islami Bank, Union Bank, EXIM Bank, and Social Islami Bank. All five are listed on the country’s stock exchange.
To finalise the merger process, Bangladesh Bank has already held meetings with the boards of these banks.
The plan is to combine them into a fully state-owned Shariah-based bank, transferring all assets and liabilities into the new institution.
Among the five, EXIM Bank and SIBL have raised objections to the merger. Their directors argue that, given time, they could recover independently.
According to Bangladesh Bank officials, the proposed merged bank would have a paid-up capital of Tk 350 billion. Of this, the government would contribute Tk 200 billion as equity, while the remaining Tk 150 billion could come from the Deposit Insurance Trust Fund. A proposal has already been sent to the finance ministry.
The initiative follows the political change of Aug 5 last year, when the Awami League government was toppled in the July Uprising. As part of financial sector reforms, new boards were installed at the five banks. Until then, EXIM Bank had been under the control of Nazrul Islam Mazumder, chairman of Nassa Group, while the other four were controlled by Chattogram-based businessman Shah Alam.
According to Governor Ahsan H Mansur, during their control, “hundreds of thousands of crores of taka” were siphoned out of these banks. To address the situation, Bangladesh Bank formed a special taskforce and commissioned foreign auditors to determine the banks’ “true” financial health.
Meanwhile, the BSEC has yet to be formally briefed on the central bank’s decision regarding the five listed banks, though it has begun monitoring developments.
Following media reports, the BSEC and Dhaka Stock Exchange (DSE) have already written to three of the banks seeking clarification on the merger.
In response, all five banks have informed investors via the DSE that no formal decision has yet been taken regarding a merger.
A senior Bangladesh Bank official said the central bank plans to formally announce the process once the legal review is complete, covering the Bank Resolution Ordinance 2025, the Bank Company Act, the Bank Deposit Insurance Act, the draft Deposit Protection Ordinance, and the BSEC Act.
WILL DEPOSITORS GET ALL THEIR MONEY BACK?
Because the banks are being merged rather than liquidated, there is a legal obligation to return the full value of deposits and ordinary shareholders’ investments.
Senior officials at Bangladesh Bank and the Ministry of Finance said a final decision will be taken after reviewing the report of a “working committee” formed by the ministry.
Whether through merger-and-acquisition or simple consolidation, the law guarantees that depositors will receive their money in full.
Bangladesh Bank spokesperson Arief said: “Depositors are worried right now, and many are trying to withdraw funds. I would request those who don’t urgently need the money not to do so. There is no risk to anyone’s deposits. The banks are not shutting down; they are merging into a new bank. All deposits will simply be transferred to the new institution.”
He added, “The new bank will be under government ownership, so there is no need for concern over deposits.”
In the case of liquidation, depositors would only be entitled to compensation of up to Tk 200,000 per account under the Deposit Insurance Act.
Arief Hossain clarified, “But these banks are not going into liquidation, so the issue of limited compensation does not arise. We have said that if necessary, support may be drawn from the Deposit Insurance Fund, nothing more. That fund could be used if required.”
WHAT THE LAW SAYS
Under Section 58 of the Bank Company Act, 1919 (amended 2023), the government may acquire any bank or company to protect depositors from loss, safeguard depositor interests, or uphold banking policy.
Section 58(e) states: “The government, after consultation with Bangladesh Bank, may by notification in the official gazette, from the date specified in such order, acquire any banking company — in whole, in part, or any of its subsidiaries — thereafter referred to as the ‘acquired bank’.”
Sub-section 4 of the same section adds that under any scheme, the government may transfer a banking company to another institution, with liabilities to be borne either by the government or the receiving bank.
In addition to this Act, the government is reviewing the Bank Resolution Ordinance 2025 for the merger.
Section 10(g) of the Ordinance mandates the protection of depositors’ interests in full.
Sub-section 2 of the same clause specifies that, for Islamic banks, Bangladesh Bank may clarify the objectives of resolution through regulations as needed.
This means that Bangladesh Bank will need to frame a separate set of rules for the merger of Shariah-based banks, something that has yet to be done.
The Ordinance also requires that administrators must be independent and impartial, and their appointment must be announced through public notices. These notices are to be published in two newspapers and on the concerned bank’s website. As of Thursday, no such notices had been issued.