Govt can now temporarily take over any bank, NBFI

The government and the Bangladesh Bank can jointly take temporary control of any scheduled bank or financial institution, including Islamic banks, by issuing share transfer orders, according to the Bank Resolution Ordinance 2025.

The share transferee must be a government-owned entity, said the ordinance.

Published in the official gazette on Friday, the ordinance earlier received approval from the Advisory Council on 17 April.

The ordinance also introduced sweeping powers to hold top bank officials—including managing directors, chairmen, and other responsible officers—personally liable for fraudulent use of a bank's funds.

These individuals will be obligated to repay the fraudulently used or misused assets or funds to the respective bank. Failure to do so will result in legal action initiated by the bank concerned against the responsible parties.

The Bangladesh Bank can now demand the asset declaration of any individual for the purpose of determining the liable person. Simultaneously, it can obtain information on immovable and movable property, receivable assets, securities, rights, and all types of attachable income.

The Banking Companies Act previously only specified the chairman, or a director, or the chief executive officer as responsible for misuse of bank funds.

The ordinance further elaborates that if a bank's beneficial owner directly or indirectly utilises the bank's assets or funds for personal gain or fraudulently uses them for the benefit of others, the Bangladesh Bank reserves the right to initiate resolution proceedings against that bank.

"Resolution," as defined in the ordinance, encompasses the power to take any form of action against the bank in question.

An additional clause within the ordinance allows the Bangladesh Bank to appoint a temporary administrator for any financially weak bank, provided specific reasons are cited.

Previously, while the central bank had appointed administrators to several banks, it was under the Special Powers Act of the central bank.

However, according to the Banking Companies Act, it was only specified that the central bank could appoint an administrator if the position of chief executive officer became vacant.

Cenbank to establish bridge bank

Furthermore, the central bank has been empowered to increase the capital of such banks through existing or new shareholders and to transfer the shares, assets and liabilities of the bank to a third party.

The ordinance also outlines circumstances under which the Bangladesh Bank can intervene in the interest of a bank's well-being if the central bank deems a bank no longer viable or unlikely to become viable, bankrupt or nearing bankruptcy, unable to meet depositor obligations, or having created a situation of financial distress.

Consequently, the Bangladesh Bank will establish a dedicated department to handle these matters.

There is also a provision for creating one or more bridge banks to ensure the continuity of essential functions and effective management of struggling banks.

These bridge banks can subsequently be sold to third parties. Bangladesh Bank retains the authority to suspend or prohibit all business activities of a weak bank. A bridge bank is defined as a temporary entity formed by the central bank to manage the operations of a weak or bankrupt bank.

Banking Sector Crisis Management Council

The ordinance mandates the formation of a seven-member inter-institutional body known as the Banking Sector Crisis Management Council. This council, expanded from the initially proposed six members by the Advisory Council, will be responsible for formulating crisis management strategies and contingency plans.

The Bangladesh Bank governor will chair this council, which will also include the finance secretary, the secretary of the Financial Institutions Division, the chairman of the Bangladesh Securities and Exchange Commission (BSEC), the secretary of Legislative and Parliamentary Affairs, the deputy governor responsible for resolutions, and another deputy governor nominated by the governor.

The council is slated to convene once every three months. The ordinance specifies that upon the revocation of a bank's licence, the Bangladesh Bank will petition the court for its liquidation.

The court will then appoint a liquidator nominated by the Bangladesh Bank. Once the liquidation order takes effect, no interest or other charges will accrue on the bank's liabilities.

Furthermore, a bank can also undergo voluntary liquidation, but it cannot cease operations without prior authorisation from the Bangladesh Bank.

Deposits must be repaid within seven working days of the licence revocation decision taking effect, and other liabilities must be settled within two months.

Additionally, the ordinance establishes personal liability for losses incurred by a failing bank due to the actions, inactions, or decisions of the individuals concerned.

Violations of the rules will incur a fine of Tk50 lakh, with an additional daily fine of Tk5,000 for continued non-compliance.

What bankers say

Talking to TBS, Syed Mahbubur Rahman, managing director and chief executive officer of Mutual Trust Bank, welcomed the latest decision but stressed that what mattered more was proper implementation.

He said loans can be non-performing due to numerous factors, including natural disasters and management weaknesses. 

Blaming bankers in such a situation is not beneficial, Mahbubur said. "Often, bankers are compelled to approve various loans. They have to consider their jobs, and as a result, they have to comply with pressure from superiors to secure their livelihoods.

"Consequently, imposing blanket punishments in all cases could slow down the daily operations of the banks."

This banker said it is not possible to improve the banking sector through legislation alone. "This is because, even under the previous laws, several of our banks operated well through good governance. Those who will implement the new resolution also need to play an active role."

Describing the resolution as timely, Arfan Ali, chairman of Zaytoon Business Solutions and former MD of Bank Asia, said the banking sector had become so undisciplined that this resolution was necessary to recover. "This new resolution will make bank owners and all bankers more cautious."

Commenting on the possibility of reconsidering the penalties for bankers involved in irregularities within the banking sector, this experienced banker said those who work in banks often become involved in irregularities due to pressure from superiors and influential individuals. "Consequently, if the rules for punishment are the same for everyone, it will create hesitation among bankers."

Md Touhidul Alam Khan, managing director and CEO of NRBC Bank, said, "The ordinance's true efficacy depends on overcoming systemic vulnerabilities: political interference in resolution decisions, inadequate risk-based supervision, and a culture of impunity for financial mismanagement. 

"History suggests that without dismantling these entrenched barriers, even the most progressive frameworks risk becoming decorative rather than defensive."