BSEC seeks safeguards for small investors in bank mergers, NBFI liquidations

Infographics: TBS

The Bangladesh Securities and Exchange Commission has formally urged the government to safeguard the interests of general investors as the financial sector undergoes a major restructuring involving the merger of five banks and the liquidation of nine non-bank financial institutions (NBFIs).

In two separate letters sent on 10 February to the Financial Institutions Division of the finance ministry, the capital market regulator argued that small and retail shareholders bear no responsibility for the governance failures or financial crises currently plaguing these listed entities. 

The BSEC emphasised that ensuring a "minimum financial interest" for these investors is essential before any final decisions on restructuring, mergers, or liquidations are executed.

The five listed banks that have been merged are First Security Islami Bank, Global Islami Bank, Union Bank, Social Islami Bank and Exim Bank. All are listed on the stock exchange and have attracted substantial retail investment.

According to the BSEC, the combined free-float market capitalisation of the five banks stands at approximately Tk900 crore, with an average free-float shareholding of around 76%.

Referring to Section 77 of the Bank Resolution Ordinance 2025, the commission noted that liability for financial collapse rests with individuals or groups identified under the law – not with general shareholders.

The commission emphasised that relying solely on balance sheet assets and liabilities would not present a true financial picture in the case of mergers. Intangible assets such as banking licences, nationwide branch networks, depositor and customer bases, skilled human resources, technological capacity, service infrastructure, and brand value must also be considered in determining fair valuation and merger ratios.

The BSEC further proposed including recoverable amounts from collateral against disbursed loans and from the seizure of assets – both movable and immovable – belonging to responsible individuals. After determining the total asset value, a minimum interest value should be set for general investors. 

Excluding shares held by those deemed responsible under Section 77, the merger ratio should be determined based on whichever is higher between market value and face value for other general shareholders, said the BSEC.

The regulator clearly stated that the banks should not be delisted from the stock exchange without announcing this minimum interest value and share acquisition price. Delisting without adequate disclosure could create long-term distrust in the capital market. It also stressed the need for clear guidelines regarding the future operational structure of subsidiaries of the concerned banks.

The letter noted that while the government and the Bangladesh Bank are taking measures to maintain depositor confidence, a similar protection framework for small investors is lacking. Without such safeguards, future capital raising in the financial sector could be negatively affected. Since capital formation through the stock market depends heavily on investor confidence, any erosion of trust could destabilise the market in the long run, it said.

Liquidation of nine NBFIs

Eight of the listed institutions on the liquidation list are FAS Finance & Investment Limited, Bangladesh Industrial Finance Company Limited, Premier Leasing & Finance Limited, Fareast Finance & Investment Limited, GSP Finance Company (Bangladesh) Limited, Prime Finance & Investment Limited, Peoples Leasing & Financial Services Limited, and International Leasing & Financial Services Limited. Their shares have been traded in the capital market for years, attracting thousands of investors.

Aviva Finance Limited is also among the institutions undergoing liquidation; however, as it is not listed, it was not mentioned in the letter.

The total free-float market capitalisation of these financial institutions is approximately Tk175.37 crore, with an average free-float shareholding of around 70%.

Calling for maximum transparency in the liquidation process, the BSEC urged timely disclosure to investors regarding the liquidation scheme, reasons for liquidation, asset sale procedures, and creditor priorities. The commission also stressed the need to formally notify stock exchanges about trade suspensions and to regularly update the public on progress.

As with the banks, the BSEC recommended considering not only balance sheet assets but also recoverable amounts from loan collateral and confiscated assets of responsible individuals. It reiterated that, in determining minimum interest for general shareholders, the higher of market value or face value should serve as the basis. Ignoring investors entirely in the liquidation process would send a negative message to the market.

The letter further stated that if the government provides compensation to depositors or any other stakeholders, allocations for investors should also be considered. It proposed including the capital market regulator in policy-level discussions related to liquidation to ensure investors' positions are properly represented.

According to the BSEC, if the burden of crises caused by weak governance and irregularities in the financial sector is shifted onto general investors, it will create long-term distrust in the capital market. Retail investors who entered the market with small savings must receive fair protection; otherwise, attracting new investors in the future will become difficult. This could weaken the capital market's role as an alternative source of capital formation for the financial sector.

Overall, the BSEC has urged that transparency, realistic asset valuation, and protection of the minimum interests of general investors be prioritised in the merger of five banks and the liquidation of nine NBFIs. 

The regulator expects that its recommendations will be considered before final decisions are made, ensuring both financial sector restructuring and sustained stability and confidence in the capital market.