BB to fix banks if deemed 'non-viable': Final draft law

Highlights

• BB to resolve a bank if it is deemed financially unstable with no prospects of recovery
• BB's resolution powers - appointing administrator, transferring shares, selling banks to third parties
• A separate department will be formed to oversee resolution, along with a Bank Restructuring and Resolution Fund
• Upon deciding to resolve a bank, BB will issue a notice and implement a resolution power within 30 days

The Bangladesh Bank has finalized the draft of the Bank Resolution Ordinance, 2025, equipping itself with provisions that allow it to resolve — meaning intervene and take corrective action against — banks it deems non-viable (no longer financially stable or capable of continuing operations).

The Bangladesh Bank's resolution powers will include appointing a temporary administrator, raising capital through new or existing shareholders, transferring the bank's shares, assets, and liabilities to a third party, establishing a bridge bank to maintain critical functions and viable operations, and selling the bank to a third party, according to the draft ordinance published by the Financial Institutions Division (FID) on its website yesterday.

"Notwithstanding anything to the contrary in any other provisions of this ordinance or any other law, where the Bangladesh Bank is satisfied that a scheduled bank is, or is likely to be, no longer viable, and has no reasonable prospects of becoming viable under the circumstances, the Bangladesh Bank may decide to resolve such scheduled bank," reads the draft ordinance.

In publishing the draft, the FID also sought public feedback on it.

Under the proposed law, the central bank will establish a separate department to exercise its resolution powers over scheduled banks. It will also create a Bank Restructuring and Resolution Fund.

The draft states, "The Bangladesh Bank shall establish a Department within the Bangladesh Bank for the proper and efficient exercise, performance, and discharge of its powers, duties, and functions related to the resolution authority under this ordinance."

Upon deciding to resolve a bank, the Bangladesh Bank will issue a notice to the bank. Within 30 days of the notice, the central bank will implement at least one resolution power.

The bank's assets and liabilities will be evaluated for the resolution. Additionally, the Bangladesh Bank may seek a court order to prevent the bank from challenging any actions taken against it under this ordinance.

Under the ordinance, the Bangladesh Bank will have the right to transfer the scheduled bank's shares or assets and liabilities on behalf of the shareholders of the bank, without any consent from any person either public or private, including the shareholders or creditors of the scheduled bank under resolution.

The transfer price for a bank under resolution shall be determined through open competition, the draft stated.

The formulation of the law follows concerns over the ownership of certain banks previously controlled by individuals and conglomerates — such as S Alam, Beximco, and others — linked to the ousted Awami League government.

If issued as an ordinance by the president, the Bangladesh Bank will be able to sell the shares of bank directors involved in fraudulent loan activities, including shares held in various banks by S Alam Group and Beximco Group. Additionally, shares of bank directors who have taken loans from banks and failed to repay them will be sold to recover the bank's dues.

According to the draft, the transferee shall have the control and possession of the transferred shares, assets and liabilities of the transferor bank. The shareholders and creditors, including depositors, whose interests and rights remain in the transferor bank shall have no rights or claims in respect of the assets or liabilities transferred to the transferee.

Shareholders of any scheduled bank under resolution shall be prohibited from disposing of the bank's shares in any way, including by way of alienation, or transfer into collateral of trust. Any transaction entered into by the shareholders of the scheduled bank in contradiction to the provisions shall be null and void.

The Bangladesh Bank may impose specific conditions on the transfer, including the requirement for the transferee to merge with the scheduled bank under resolution in a reasonable timeframe. The liabilities transferred to the transferee shall consist of the protected depositors of the scheduled bank.

The draft states that if a bank fails to comply with the Bank Companies Act, any directions from the Bangladesh Bank, or fails to maintain required capital or liquidity, and if the Bangladesh Bank deems the bank insolvent, the bank can be resolved.

Additionally, if a bank fails to meet its obligations to depositors or creditors, or engages in unsafe or unsound practices that weaken its condition — such as when the bank's ultimate beneficial owners or responsible individuals fraudulently use the bank's funds for personal or others' gain, thereby jeopardising the bank's operations and causing significant losses — it may also be resolved by Bangladesh Bank.

The draft also states that the Bangladesh Bank may remove or replace any officer, including the director, CEO, or key management personnel, of any scheduled bank and recover any money paid by the bank for their salaries and allowances.

Additionally, the Bangladesh Bank may override the rights of shareholders and creditors of such a scheduled bank in any transaction.

'New law to address weaknesses in current law' 

Dr Zahid Hussain, a member of the Banking Sector Reform Taskforce and former lead economist at the World Bank's Dhaka office, recently told TBS, "The Bank Resolution Ordinance is being developed to address weaknesses in the current law regarding bank mergers, acquisitions, and liquidation."

He explained that under this law, a separate department will be created, overseen by the Bangladesh Bank, to manage ownership changes, mergers, liquidations, or acquisitions of shares in weak banks.

The law is being designed to prevent former owners from regaining ownership through legal action or putting the new owners at risk, he said, emphasising that if this safeguard is not in place, potential buyers will be deterred from acquiring shares or ownership from influential bank owners.