6 troubled banks to be merged by July, govt to take ownership

Bangladesh Bank Governor Ahsan H Mansur today (26 May) announced plans to merge six financially weakened banks by July this year due to irregularities and loan fraud. The central bank will temporarily place these banks under government ownership to stabilise the sector.

"Banks that have been audited will be merged," Governor Mansur told a television channel today.

The audited banks are First Security Islami Bank, Social Islami Bank, Union Bank, Global Islami Bank, Exim Bank, and National Bank.

"We expect to bring these six banks under government ownership by July and provide the necessary capital injections."

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Ahsan H Mansur, Governor, Bangladesh Bank

Four of these were under the control of the controversial S Alam Group until 5 August last year. Exim Bank was managed by businessman Nazrul Islam Majumdar, while National Bank was controlled by the Sikder Group.

Near the end of the Awami League government's term, S Alam Group attempted to gain control of National Bank as well.

"We expect to bring these six banks under government ownership by July and provide the necessary capital injections," Mansur said. "The central bank has already extended significant liquidity support to these institutions."

He clarified that government ownership would be temporary, with shares eventually transferred to the public and international strategic investors once the banks are reorganised.

The governor also stressed efforts to raise the banks' capital adequacy ratio – currently below regulatory requirements – to between 12.5% and 15% within four years. 

Under Bangladesh Bank rules, banks must maintain a minimum capital of 10% against risk-weighted assets plus a 2.5% capital conservation buffer, totalling 12.5%.

Repeated calls to Governor Mansur for further comment went unanswered. However, central bank spokesperson Arif Hossain Khan said no official statement has been released yet but affirmed the governor's remarks were likely accurate.

"We will not rest until those who misappropriated funds are held accountable," Mansur said in the interview. "We are actively pursuing those responsible and cooperating with international agencies to recover laundered money." 

He highlighted ongoing investigations by three agencies into financial crimes related to the banking crisis.

To assess these banks' financial health, Bangladesh Bank engaged global auditors Ernst & Young (EY) and KPMG in February, with funding from the Asian Development Bank (ADB). The audit aims to boost transparency and accountability in the sector.

Status of the 6 banks

First Security Islami Bank, chaired by S Alam Group's Saiful Alam Masud (commonly known as S Alam) until August last year, faced severe liquidity shortages following the government change. 

The Bangladesh Bank dissolved its board and appointed Abdul Mannan, a seasoned managing director from another Islamic bank, as chairman. Under his leadership, the bank is beginning to stabilise.

After 5 August, daily deposit outflows exceeded inflows by about Tk200 crore, but by early May, this gap narrowed to just Tk6 crore. The chairman expects deposits and withdrawals to balance by mid-May.

Despite liquidity support totalling Tk13,820 crore up to January, the bank still faces a capital shortfall of Tk14,000 crore and has non-performing loans worth Tk17,851 crore.

Social Islami Bank, also controlled by S Alam, received Tk8,573 crore in liquidity support, Union Bank Tk4,600 crore, Global Islami Bank Tk2,336 crore, Exim Bank Tk9,500 crore, and National Bank Tk8,353 crore.

Legal framework for bank mergers

The Bank Resolution Ordinance 2025 empowers the government and Bangladesh Bank to jointly take temporary control of any scheduled bank or financial institution, including Islamic banks, by issuing share transfer orders. The transferee must be a government-owned entity, as stipulated by the ordinance.

The ordinance also permits Bangladesh Bank to appoint a temporary administrator to manage any financially weak bank, subject to clear justification.

In addition, the central bank is authorised to increase capital in such banks through existing or new shareholders and to transfer shares, assets, and liabilities to third parties.

The law outlines conditions under which Bangladesh Bank may intervene if a bank is deemed non-viable, bankrupt or nearing bankruptcy, unable to meet depositor obligations, or causing financial distress.

Creation of bridge banks

To manage these situations, Bangladesh Bank will establish a dedicated department. It also provides for the creation of one or more bridge banks to ensure continuity of critical functions and effective management of struggling institutions.

These bridge banks will operate temporarily and may later 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 oversee the operations of a failing or bankrupt bank.