Central Bank dissolves boards of 5 Shariah-based banks ahead of merger

Bangladesh Bank has dissolved the boards of five weak Shariah-based banks as part of a major move to merge them into a single large Islamic bank.

In a notice sent to the managing directors of the concerned banks, the central bank has informed them of the decision, saying that the merger process will be overseen directly by the regulator.

A senior Bangladesh Bank official today (5 November) said the names of the administrators who will head the merged entity temporarily will be announced at a press briefing by the central bank governor at 4pm.

The five banks whose boards have been dissolved are First Security Islami, Global Islami, Union, Social Islami, and EXIM.

Five-way merger to create nation’s largest bank by assets

During the Awami League government's tenure, four of these banks were reportedly under the ownership of the S Alam Group, a Chattogram-based conglomerate that has long been in the spotlight for its grip on multiple financial institutions. The other was controlled by businessman Nassa Group Chairman Nazrul Islam Mazumder.

Over the years, the banks became financially distressed after thousands of crores of taka were allegedly siphoned off through irregularities and multiple loans.

Back in September, the Bangladesh Bank board approved a proposal to consolidate the five lenders into a single entity, which will become the country's largest bank by assets -- at around Tk2.20 lakh crore.

Once complete, the new bank will emerge as one of the country's largest lenders, positioned to rival Islami Bank Bangladesh PLC, the current market leader in Islamic finance.

5-bank merger unlikely to yield positive results: Experts

The BB has already conducted asset quality reviews (AQRs) of the five banks through global audit firms, a prerequisite for the merger, which revealed non-performing loans ranging from 49% to as high as 98.5%.

All five banks also suffer from massive capital shortfalls and provisioning deficits, making recovery even more difficult.

According to the central bank's draft outline, the merger will cost Tk35,000 crore. Of this, Tk20,000 crore will come directly from the government, meaning the money will come from the pockets of taxpayers.

Tk10,000 crore will be drawn from the deposit insurance fund, pending legal amendments to use it as a loan. The remaining Tk5,000 crore is expected from multilateral lenders, including the IMF, World Bank, and ADB, as part of broader financial sector reforms.

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Even the external funds will ultimately be repaid by taxpayers.

Small savers will be protected through early payouts to safeguard confidence, according to the draft. But large institutional deposits — corporates, state agencies, and others — will be converted into equity in the new bank.