BB puts ball in govt’s court over compensation amid merger protests

The Bangladesh Bank has affirmed that it currently has no scope to protect the interests of general investors and shareholders who may face potential losses following the planned merger of five financially distressed banks, stating that the government may consider the issue of compensation.

The clarification came through a press release issued by the Bangladesh Bank yesterday, following growing protests from retail investors demanding the resignation of the central bank governor and announcing a plan to lay siege to the Bangladesh Bank headquarters.

The statement followed Wednesday's announcement by the governor declaring that shareholders of the five merging banks would lose the entire value of their shares.

Compensation possible after evaluation

According to the press release, under the Bank Resolution Ordinance, if the value of an investment is wiped out during resolution and a shareholder faces greater losses than what would have occurred in liquidation, the shareholder may be entitled to compensation equivalent to the excess loss.

Such compensation, if applicable, will be determined after the resolution process is completed, based on assessments carried out by independent professionals appointed by the Bangladesh Bank, the statement added.

The central bank noted that the Bank Resolution Ordinance, 2025 was formulated in line with international best practices and with technical input from the IMF, World Bank, and the UK's Foreign, Commonwealth and Development Office. The ordinance clearly outlines the rights of depositors, shareholders, and other creditors under the resolution process.

Citing analysis from an international consulting firm's Asset Quality Review and special inspections, the central bank said the five banks were incurring "massive losses" and had negative net asset value.

"In light of these findings, the Banking Sector Crisis Management Committee decided in its 24 September meeting that the shareholders of these distressed banks must bear the burden of the losses under the resolution process," the central bank explained.

Accordingly, it said, "Considering the relevant provisions of the Bank Resolution Ordinance, 2025 and the Banking Sector Crisis Management Committee's decision, there is currently no scope to preserve the interests of ordinary investors or shareholders in the merger of the five banks. However, the government may consider compensating shareholders to protect their interests."

Merger process and capital structure

On Wednesday, the Bangladesh Bank formally notified the boards of the five banks, declaring them "non-viable" under the Bank Companies Act. Their boards have since been dissolved, and administrators have been appointed.

The newly formed United Islamic Bank will have a combined capital base of Tk35,000 crore, of which Tk20,000 crore will come from the government and Tk15,000 crore will be converted from depositors' shares.

The central bank assured depositors that those with deposits up to Tk2,00,000 will receive their money within a month from the Deposit Protection Fund, while larger depositors will be repaid gradually.

The entire merger process is expected to take around two years to complete.

The Bangladesh Bank said the resolution process aims to protect depositors and restore confidence in the financial sector after years of mismanagement and irregularities in the banking system.

Trading suspension and protest

The Dhaka Stock Exchange (DSE) yesterday suspended trading of shares of all five banks "until further notice."

A group of share market investors yesterday gave Bangladesh Bank Governor Ahsan H Mansur until Saturday to resign over the merger of five banks, saying the consolidation robs small investors of their savings.

The demand was announced at a press briefing after trading hours in front of the old DSE building in the capital's Motijheel area.

The group, under the banner of the Bangladesh Capital Market Investors' Unity Council, also warned that it would besiege the Bangladesh Bank headquarters next Tuesday if the governor does not step down.