BB meeting: Five Shariah-based banks to be merged into one

Five Shariah-based banks that are struggling financially are set to be merged into a single large Islamic bank. The government will provide the initial capital for the new bank, which will focus primarily on financing small and medium enterprises (SMEs).

Bangladesh Bank will grant the license for this new institution, and the assets and deposits of the five banks will be transferred under it. The process is scheduled to begin right after the Eid holidays.

On Wednesday, the central bank called in the chairmen and managing directors (MDs) of the five banks to inform them of the decision, according to officials from both the central bank and the five Shariah-based banks.

They said customers will not face any disruption during the transition, as all depositors will automatically become clients of the new bank. Except for top-level executives, other bankers will remain in service until the merger process is complete. The merger is expected to take at least three years, and the banks have been instructed to remain prepared for this.

The five banks are First Security Islami Bank, Global Islami Bank, Union Bank, Social Islami Bank, and EXIM Bank. Earlier, Bangladesh Bank governor Ahsan H Mansur announced at a banking conference on 9 April that two large banks will be developed with the Shariah-based banks.

Among the five, EXIM Bank is owned by Nazrul Islam Mazumder, a businessman close to the Awami League, while the remaining four are owned by S Alam Group, a business conglomerate close to ousted prime minister Sheikh Hasina. During the previous government’s tenure, a staggering sum of money was withdrawn from these banks under various names, weakening their financial standing.

After the fall of the Awami League government following a student-led uprising on 5 August last year, new boards were introduced in these five banks. Independent directors now manage four of them, excluding EXIM Bank.

After the Eid holidays, Bangladesh Bank will join the operational management, and form separate committees with officials of the concerned banks. A foreign firm has already completed asset quality assessments of the banks.

Bangladesh Bank will allow the banks to raise any objections to the audit reports. If a bank can prove its financial soundness, it may be exempted from the merger. Otherwise, the process will proceed under the Bank Resolution Ordinance 2025, to be completed by 15 October.

Under the process, non-performing loans from the merging banks will be handed over to an asset management company (AMC), keeping the new bank’s default loan ratio below 10 per cent. This will lower foreign trade transaction costs and allow the bank to access refinancing from Bangladesh Bank.

Later, a new bank license will be granted, and the initial capital will come from the government and foreign development partners. In this regard, a budget allocation has already been made for 2025–26 fiscal year. The assets and liabilities of the five banks will be transferred to the new entity, with branch-level integration and staff reduction taking place gradually.

Once the bank is fully operational, shares will be floated in the private sector, allowing private investors to join its management. The full process is estimated to take at least three years.

In the meeting on Wednesday, governor Ahsan H Mansur and deputy governor Kabir Ahmad briefed the banks’ top leadership on the plan. The chairmen of EXIM Bank and Social Islami Bank reported some improvement in their institutions’ financial conditions.

When asked, Bangladesh Bank spokesperson Arif Hossain Khan declined to comment on the meeting.

Mohammad Nurul Amin, chairman of Global Islami Bank, told Prothom Alo, “We’ve been informed about the plan to merge five banks into a single large bank. If any bank can prove it is in good health, it will be excluded from the list. All have agreed to cooperate with Bangladesh Bank in this regard. This meeting marks the beginning of the bank resolution process.”