Nine state banks to be merged into two large entities: Governor

The Bangladesh Bank plans to merge all nine state-owned banks into two large banks, citing the size of Bangladesh's economy and the need to improve governance and address long-standing mismanagement in the sector, Governor Ahsan H Mansur said on Tuesday.

Speaking at a discussion at Jagannath University in Dhaka, the governor said Bangladesh currently has 61 banks—far more than the economy requires.

"In Bangladesh's context, 10 to 15 banks are sufficient," he said, adding that the country needs a smaller number of large banks rather than many small ones. "Reducing the number of banks would make it easier to ensure good governance."

Infographic: TBS

Later, speaking to The Business Standard, Mansur cited India as an example, noting that the neighbouring country has decided to reduce the number of state-owned banks to four despite having an economy more than 10 times larger than Bangladesh's.

He also pointed to Singapore-based DBS Bank, which has assets of around $1.2 trillion—equivalent to nearly Tk130 lakh crore—while the combined size of Bangladesh's entire banking sector stands at about Tk20 lakh crore.

"Although Singapore's economy is similar in size to Bangladesh's, its financial sector is 20 times larger," he said. "Despite that, Singapore has only a few banks, but all of them are very large."

State-owned banks to be consolidated

Bangladesh currently has nine state-owned banks: four commercial banks—Sonali, Agrani, Rupali and Janata; two development banks—BASIC and Bangladesh Development Bank; and three specialised banks—Bangladesh Krishi Bank, Rajshahi Krishi Unnayan Bank and Probashi Kallyan Bank.

The governor revealed the state-bank merger plan as the central bank moves ahead with wider restructuring of the financial sector, following the merger of five private Islamic banks and the initiation of liquidation proceedings against nine non-bank financial institutions (NBFIs).

Mansur said mismanagement, irregularities, nepotism and weak governance had severely weakened the banking sector, resulting in losses of nearly Tk3 lakh crore, a significant portion of which may have been laundered abroad.

He alleged that $20–25 billion may have been siphoned off through nepotistic channels while speaking at the event titled "Banking Sector: Current Challenges and Future Prospects."

Economists back consolidation

Commenting on the plan, Zahid Hussain, former lead economist at the World Bank's Dhaka office, said the merger of state-owned banks was long overdue.

"There is no question about the desirability of consolidation," he said, adding that the Bangladesh Bank now needs a clear roadmap on how the mergers will be carried out.

Hussain, who is also a member of the banking sector reform task force formed after the regime change, said state-owned banks have failed to move away from a bureaucratic model and remain vulnerable to political influence.

"All the large loan scams we know of during the previous regime occurred in state-owned banks," he said.

Repeated government recapitalisation has placed a heavy burden on taxpayers, and bringing the banks under one umbrella is the right decision, he added.

He noted that Sonali Bank, the largest state-owned lender, plays a key role in treasury operations and social welfare programmes through its extensive branch network. "However, nine state-owned banks are unnecessary for delivering such programmes," he said.

Recent restructuring

The Bangladesh Bank has already merged five troubled Islamic banks – First Security Islami, Global Islami, Social Islami, Exim, and Bank – and formed a new bank named Sammilito Islami Bank.

The government is required to provide Tk20,000 crore for the five merged banks, of which Tk10,000 crore has already been disbursed.
The Bangladesh Bank also started to liquidate nine non-bank financial institutions for which the government will provide Tk5,000 crore to pay back individual depositors' money. 

The nine NBFIs slated for liquidation are FAS Finance, Bangladesh Industrial Finance Company, Premier Leasing, Fareast Finance, GSP Finance, Prime Finance, Aviva Finance, People's Leasing, and International Leasing.

Meanwhile, the central bank also plans to create a dedicated "resolution fund" of up to Tk40,000 crore to rescue and restructure failing banks without relying on taxpayer-funded government bailouts.

Overbanking and weak balance sheets

World Bank data show that Bangladesh's GDP in 2023 stood at $323.28 billion (at constant 2015 prices), supported by 61 banks. By comparison, Pakistan—with a GDP of $400.17 billion—had 41 banks, while India, with a $3.2 trillion economy, operated with just 33 banks.

The data underline concerns that Bangladesh is significantly overbanked, while peer countries have expanded branch networks of large banks rather than multiplying the number of institutions.

Despite years of government support, the financial health of state-owned banks remains fragile. Between 2009 and 2024, more than Tk25,000 crore was injected into these banks to keep them afloat.

BASIC Bank's default loan ratio now exceeds 70%, while Janata Bank's stands at over 73%. As of December 2024, Agrani, Janata, BASIC and Rupali banks reported a combined capital shortfall of Tk31,000 crore, with the Bangladesh Bank rejecting their five-year recovery plans as "unrealistic".

Sonali Bank and Bangladesh Development Bank also faced a provisioning shortfall of Tk4,763 crore, although regulatory forbearance allowed them to report a modest capital surplus.