Boards of 5 merging Islamic banks dissolved, repaying small depositors to start in a month
Five administrators take charge
The boards of the five troubled Islamic banks set for merger have been dissolved, and administrators were appointed yesterday – marking the first concrete step in the government's long-awaited clean-up of the sector.
Although the full merger is expected to take about two years, the Bangladesh Bank has assured that small depositors (up to Tk2 lakh) can withdraw their funds, with the process set to begin within a month. Large depositors will receive their money in phases.
For retail shareholders, however, the news is grim – they will receive nothing despite the banks being publicly listed. Bondholders, meanwhile, are likely to recover their funds.
Keep updated, follow The Business Standard's Google news channel
The announcement came from Bangladesh Bank Governor Ahsan H Mansur at a press briefing held at his office yesterday.
The governor said that, temporarily, specific individuals have been given administrative responsibilities for a few days. They will review the assets and liabilities of the respective banks and later complete the entire process of merging them into the new bank.
The banks to be merged are – First Security Islami Bank, Union Bank, Global Islami Bank, and Social Islami Bank and EXIM Bank.
Earlier, yesterday, the central bank formally sent letters to the boards of the five banks, declaring them non-viable within the framework of the Bank Companies Act.
Sponsors, general shareholders of 5 merged Islamic banks now empty handed: Governor
Five executive directors of the Bangladesh Bank have been appointed as administrators to the banks: Sala Uddin for Social Islami Bank, Mohammad Abdul Hashem for Union Bank, Mohammad Badiuzzaman Dider for First Security Islami Bank, Md Muksuduzzaman for Global Islami Bank, and Md Sawkatul Alam for EXIM Bank.
'Depositors are safe, no need for panic withdrawal'
"The new bank [formed by merging the five institutions] will be stronger than any other bank. Depositors have no reason to worry; their money will be safe," the governor said.
He added, "Every depositor will receive a market-based profit rate. Once the new bank starts operations, the profit rate will be determined in line with the market."
Mansur said, "Depositors with less than Tk2 lakh will be able to withdraw their full deposits. For larger deposits, a phased withdrawal schedule will be announced through the government gazette."
"We do not want anyone to panic and withdraw money unnecessarily. Rather, we are assuring everyone that this new bank will be built on a strong foundation," he added.
The governor said the administrators will mainly focus on four areas: operation management (keeping the bank's daily activities running smoothly), IT system monitoring (ensuring the security of the bank's information technology infrastructure), HR assessment (evaluating workforce and human resource conditions), and branch realignment (reorganising and optimising the branch network).
He said a central support team from the Bangladesh Bank will work alongside the administrative team to maintain operational and regulatory coordination. The bank's own officials will also be part of this process, ensuring that banking operations continue normally.
"Our goal is to keep banking operations functional. Like the banks are open today, they will remain open tomorrow. Remittances, payments, and clearing will continue as before," said Mansur.
He said that these banks have around 75 lakh deposit accounts, all of which will remain secure after the merger. "At this stage, there are no plans for layoffs. Workforce reorganisation, if needed, will happen in a later phase. For now, existing staff will manage operations."
Currently, these banks have 705 branches. In densely populated areas, some branches may be consolidated, while banking services will be expanded in remote locations, he added.
"Our objective is clear – to complete the merger of these five banks successfully and establish a strong, sustainable banking structure. It is a challenging task, but we firmly believe that with government support and under the supervision of the Bangladesh Bank, it will be successfully implemented," said the governor.
The merger of the five lenders is expected to create a single institution that would become the country's largest Islamic bank, with assets of roughly Tk2.20 lakh crore.
'Country's strongest financial institution'
Ahsan H Mansur said, "Within the next month, we will reconstitute this merged bank. Professional bankers will be included to ensure it is managed with modern and efficient practices. It will be a government-owned bank, but operated like a private bank."
He said, "The merger process may take one to two years to complete. We will take as much time as necessary to ensure the process is carried out smoothly. The goal is to transform the bank into a strong and sustainable financial institution."
"The new bank's paid-up capital will be Tk35,000 crore – the highest in Bangladesh's banking history. This will make it the country's strongest financial institution. We hope the public and depositors will place full confidence in this bank," he added.
Sponsor and ordinary shareholders' shares now zero
About the fate of sponsor directors and ordinary shareholders in the merged banks, the governor said, "We are following international practice under the Bank Resolution Ordinance, where decisions are based on the actual value of shareholders' holdings.
For instance, if a bank's Tk10 share has a net asset value (NAV) of negative Tk350 to Tk420, it means the share has no real value – effectively, it has become zero."
When questioned whether sponsor shareholders would have their shares confiscated, he clarified, "For sponsor shareholders, the value of their shares is effectively zero. When a bank's liabilities exceed its assets, the net asset value turns negative, rendering the investors' shares practically worthless."
Bondholders are likely to get their money back
When asked about the fate of investors who bought bonds from the five merging banks – more than Tk4,000 crore over time — the governor said, "We will review the liabilities related to the bonds. First, we will examine how the funds were used and classify the liability."
"Very soon, we will issue a gazette notification clearly explaining how the bondholders will get their money back. Rest assured, they will be repaid in one way or another," he said.
The notification will specify who belongs to which type of investor or bondholder. If necessary, the status of the bond claims will be determined and recovery techniques will be applied, said Mansur.
CenBank's measures on legal action against looters
When asked about the steps being taken against those who looted the banks' funds, the governor said, "Cases have already been filed against many individuals. Assets of those involved in corruption have been attached. The Anti-Corruption Commission (ACC), CID, and other agencies are investigating. New information continues to emerge, and based on that, legal actions are being strengthened. The process of recovering and selling the looted assets of these banks has also begun."
