Sammilito Islami Bank stalled amid govt dilemma over excluding two banks
According to central bank sources, some directors of Social Islami Bank have already applied to the Bangladesh Bank, seeking restoration of ownership. However, no decision has yet been taken at the government level.
The operation of the newly formed Sammilito Islami Bank has remained effectively stalled amid government indecision over whether Exim Bank and Social Islami Bank will remain part of the planned merger, deepening uncertainty for depositors and further eroding confidence in the country's banking sector.
The uncertainty has intensified following amendments to the Bank Resolution Ordinance that created a legal pathway for former owners to reclaim control of distressed banks, raising questions over the future structure of Sammilito Islami Bank and delaying key operational decisions.
According to central bank sources, some directors of Social Islami Bank have already applied to the Bangladesh Bank, seeking restoration of ownership. However, no decision has yet been taken at the government level.
At the same time, disagreement between the Bangladesh Bank and the Financial Institutions Division (FID) under the finance ministry over the use of the bank's Tk20,000 crore capital has paralysed operational activities.
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The central bank sought permission from the FID to use part of the capital for salaries and operational expenses, but the proposal was rejected. As a result, employees of the five banks involved in the merger have not received salaries since January.
Under the Bank Resolution Ordinance, the FID is regarded as the owner of the merged bank and is responsible for management-related matters, while the Bangladesh Bank oversees administrative issues.
Currently, the Bangladesh Bank is using Tk12,000 crore from the deposit insurance fund to repay depositors of the five banks, whose combined deposits total around Tk1,33,000 crore.
Despite the ongoing crisis, the FID has yet to complete the reconstitution of the board or appoint a new chairman and managing director, leaving Sammilito Islami Bank without effective leadership.
The bank's board has remained dysfunctional since former chairman Mohammad Ayub Miah resigned in March after the new government assumed office. Although a managing director was selected earlier, the appointee ultimately declined to join.
Sammilito Islami Bank has not held any board meeting since Bangladesh Bank Governor Md Mostaqur Rahman assumed office on 25 February.
Officials from both Bangladesh Bank and the FID said the governor had been informed about the operational crisis on various occasions.
Earlier in March, the government issued a fresh circular seeking applications for the post of managing director after the previously selected candidate declined the role. The FID began interviewing candidates nearly two months later.
The Business Standard spoke to at least 10 officials from Bangladesh Bank, the FID and the finance ministry involved in the merger process and management of Sammilito Islami Bank. All requested anonymity.
On 5 November, during the interim government, Bangladesh Bank took control of five Islamic banks – First Security Islami Bank, Global Islami Bank, Union Bank, Exim Bank and Social Islami Bank.
Exim Bank had been controlled by Nazrul Islam Mazumder, former chairman of the Bangladesh Association of Banks, while the remaining four banks were linked to S Alam Group Chairman Mohammed Saiful Alam.
Four days later, Bangladesh Bank approved a letter of intent to form Sammilito Islami Bank through the merger of the five lenders.
A senior Bangladesh Bank executive expressed frustration over delays in activating the board and restructuring the bank.
" You cannot keep running it only through temporary arrangements," the official said.
According to the official, uncertainty over whether all five banks will remain within Sammilito Islami Bank has slowed the process considerably.
"We heard about applications from Social Islami Bank and Exim Bank to come out of Sammilito Bank. We can't understand what is really happening," the official said.
The official said depositors had already received Tk2,00,000 under the first phase of repayments and an additional Tk1,00,000 would be released shortly from the insurance fund.
"So far, Tk12,000 crore has been spent from the insurance fund. But some other payments need to come from capital and the ministry is not agreeing," the official said.
The official also referred to unresolved foreign liabilities, including obligations involving Germany's Commerzbank linked to S Alam Sugar Mills through Social Islami Bank.
Bangladesh Bank also proposed using the capital to pay two months' salaries and allowances, but the proposal was again rejected.
The official further said Bangladesh Bank had pushed for an audit of the banks before any new investor entered the process.
FID cites legal and fiscal constraints
A senior FID official said the government itself remained uncertain about the future direction of the bank.
According to the official, the government initially promised in its election manifesto that depositors of distressed banks would receive full repayment, but later realised the scale of the financial burden.
"The amount involved is Tk133,000 crore. That would consume a major portion of the national budget," the official said.
The official argued that using taxpayer funds to compensate private depositors would not be appropriate given the country's limited fiscal space.
According to the FID, the five banks still retain separate banking licences and registrations with the Registrar of Joint Stock Companies, meaning Sammilito Islami Bank cannot yet operate as a fully merged entity.
The official explained that although Bangladesh Bank has the authority to cancel banking licences, it cannot cancel company registrations under the Companies Act.
Under existing law, only a court can order cancellation of corporate registration, creating a legal complication for the merger process.
Fresh uncertainty over former owners
The amended resolution framework has added another layer of uncertainty by allowing former owners to potentially regain control of their banks.
According to the FID official, this has raised questions about why a managing director should be appointed for Sammilito Islami Bank when the five original banks still legally exist.
"Sammilito Islami Bank is now a separate legal entity. It has its own licence and registration," the official said.
The official added that even if the five banks ultimately do not merge into Sammilito Islami Bank, the entity could still operate independently as a state-owned Islamic bank backed by Tk20,000 crore in capital.
However, the official warned that weaker banks might not survive independently if stronger banks withdrew from the merger process.
"In the end, the government may still have to take responsibility for them," the official said.
