Bangladesh Bank has initiated a plan to merge five troubled banks in the country. The proposal, prepared by the central bank’s Governor Ahsan H. Mansur, has recently been approved by Finance Adviser Salehuddin Ahmed.
According to sources, Bangladesh Bank secured the adviser’s approval swiftly ahead of his long visit to Japan on 24 August. With two consecutive government holidays before his departure, the approval was obtained on the last working day of the previous week.
It has been learned that the newly formed bank resulting from the merger will be operated under the direct supervision of Bangladesh Bank. The aim is to stabilise the institution and eventually hand it over to capable and private investors. This restructuring will require an estimated capital injection of Tk 35,000 crore.
In a letter, the governor noted that a Banking Sector Reform Taskforce was formed in September 2024 with the objective of restoring governance, ensuring accountability, and reestablishing order within the sector. As an initial step, the boards of 15 banks experiencing liquidity crises and engaging in practices detrimental to depositors’ interests were restructured.
To determine the actual financial conditions of scheduled banks, Bangladesh Bank conducted inspections and analysed data from the banks. Based on this, the six most distressed scheduled banks—First Security Islami Bank PLC, Global Islami Bank PLC, Union Bank PLC, EXIM Bank PLC, Social Islami Bank PLC, and ICB Islami Bank Ltd—were selected for asset quality review. Two reputed international consulting firms, KPMG (Sri Lanka) and EY (Sri Lanka), were appointed to conduct the assessments.
Simultaneously, Bangladesh Bank launched special inspections to uncover the underlying causes of the crisis—particularly the high volume of classified loans and advances—and to identify those responsible.
Findings from the consulting firms, special inspections, and regular supervisory activities revealed that despite restructuring the boards, the financial health of the six banks had not improved. On the contrary, these banks consistently failed to repay emergency liquidity support received directly from Bangladesh Bank and cash assistance obtained from other scheduled banks against central bank guarantees.
According to the asset quality review as of 30 September 2024, the deficits for the banks were: Tk 53,890 crore for First Security Islami Bank PLC, Tk 12,124 crore for Global Islami Bank PLC, Tk 23,811 crore for Union Bank PLC, Tk 20,558 crore for EXIM Bank PLC, Tk 24,845 crore for Social Islami Bank PLC, and Tk 1,638 crore for ICB Islami Bank Ltd.
On the same date, the amount of non-performing loans (NPLs) for these banks stood at: Tk 60,069 crore, Tk 13,570 crore, Tk 27,416 crore, Tk 25,101 crore, Tk 25,392 crore, and Tk 678 crore, respectively. Their NPL ratios were 99.50%, 95.49%, 98.35%, 48.20%, 67.10%, and 90.26%, respectively.
As of 30 June 2025, their outstanding liquidity support stood at: Tk 152.59 billion, Tk 2,865 crore, Tk 5,253 crore, Tk 9,550 crore, and Tk 10,138 crore. ICB Islami Bank Ltd received Tk 100 crore in liquidity assistance in May 2025. Despite receiving liquidity support over the past year, their financial conditions have not improved—instead, liquidity shortages have deepened.
The extent of capital shortfalls, high levels of classified loans and advances, provisioning deficits, and liquidity crises has left these banks unable to meet obligations to depositors and creditors. This has undermined public confidence in the banking sector and poses a serious threat to overall financial stability in the country.
The letter stated that, as these banks are unlikely to remain viable, Bangladesh Bank believes it is imperative to bring them under the resolution process promptly under the newly introduced Bank Resolution Ordinance 2025. The objective is to restore stability in the financial sector, reinstate order in the banking system, rebuild depositor confidence, and ensure sustainable credit flows for economic growth.
The governor proposed that, subject to government approval, a new bank may be established initially. Temporary financial support from the government would be required to capitalise this proposed bank. Under the Bank Resolution Ordinance 2025, the troubled banks will be designated as “transferring banks” while the new entity will act as the “receiving bank.”
The new bank will operate commercially and professionally under the close supervision of Bangladesh Bank. Eventually, its ownership (shares) will be transferred to domestic and foreign strategic investors, with the government recovering its entire investment along with returns.
Among the six banks assessed, ICB Islami Bank PLC is currently engaged in ongoing court proceedings over its shareholding structure. Therefore, Bangladesh Bank considers it prudent to exclude the bank from the resolution process at this stage.
In this case, a new bank will need to be established as the receiving entity, with the five transferring banks merging into it along with all their assets and liabilities. Given the significant capital deficits, toxic assets, and liquidity crises of the transferring banks, the receiving bank will need to absorb substantial risk.
To determine the necessary volume of liquid assets required to offset this risk and complete the resolution process successfully, multiple simulation exercises were conducted by the Bank Resolution Department. Results indicate that the new bank will require approximately Tk 35,000 crore in paid-up capital.
As per the initial plan, Tk 15,000 crore will be raised by converting institutional deposits into equity through a bail-in process. The remaining Tk 20,000 crore will be provided by the government.
The proposed new bank will operate on commercial and professional principles under close central bank supervision. Eventually, the government’s full investment will be recouped through the sale of ownership stakes to strategic investors and an initial public offering (IPO).
However, throughout various phases of the resolution process, the new bank will require multiple policy supports. The central bank suggested that the government offer a minimum five-year tax holiday to support the new entity’s financial indicators.
In addition, the governor requested that the Economic Adviser consider exempting post-provision profits from taxation in line with international best practices.
SMS/
