Govt okays merger of 5 troubled banks to form new Islami bank with Tk35,000cr paid up capital
Provision raised to Tk2 lakh to pay back individual depositors of five merged banks
Highlights
- Five Islamic banks to merge into state-owned bank with Tk35,000 crore capital
- Deposit insurance raised to Tk2 lakh, repayment in 17 days
- No job losses; all depositors to be reimbursed
- Govt to fund Tk20,000 crore, legal action against bank owners planned
- Part of banking reform programme to restore stability
The Advisory Council of the interim government today (9 October) approved the merger of five troubled Islamic banks to form a new government-backed bank with the largest paid-up capital of Tk35,000 crore.
The council meeting, chaired by Chief Adviser Muhammad Yunus, approved the proposal involving First Security Islami Bank, Global Islami Bank, Union Bank, Exim Bank, and Social Islami Bank.
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Individual depositors will be reimbursed under the Deposit Protection Ordinance, 2025, which was also approved on the same day, raising the maximum coverage ceiling to Tk2 lakh from the previous Tk1 lakh.
Institutional deposits of Tk15,000 crore will be converted into capital and repaid later under the Bank Resolution Plan, according to the approved document.
The Finance Division will initially manage the bank on behalf of the government, with gradual transfer to the private sector.
Of the total paid-up capital, the government will provide Tk20,000 crore – Tk10,000 crore in cash and the remaining Tk10,000 crore through Sukuk bond issuance, according to the merger plan. The bank's authorised capital is set at Tk40,000 crore.
There is no scope to settle claims of bank owners and shareholders of the five banks due to the huge capital shortfall and negative net asset value, the approved documents said.
Responding to journalists' questions after the Advisory Council meeting, chief adviser's Press Secretary Shafiqul Alam assured that no employees of the five banks would lose their jobs and all individual depositors would be reimbursed.
The Finance Division will take necessary legal action against owners, board members, and officials involved in financial mismanagement and corruption in the five banks.
How depositors will be reimbursed
The maximum insurance coverage is set at Tk2 lakh, covering 93% of depositors. The ceiling will be reset every three years by the trustee board, according to the ordinance.
The timeline for reimbursing depositors has been shortened to a maximum of 17 days, down from the previous 180 days.
Depositors of the five merged banks with deposits up to Tk2 lakh will be repaid under the ordinance, while amounts above the limit will be settled under the Bank Resolution Plan.
The new ordinance also extends deposit protection to depositors of non-bank financial institutions, ensuring reimbursement up to Tk2 lakh in cases of liquidation or merger.
It includes provisions for financial assistance from the deposit protection fund for resolving banks and non-bank financial companies.
The finance ministry has proposed supporting Tk12,000 crore from the deposit protection fund for the merger of the five banks, according to the approved ordinance.
The deposit protection fund stood at Tk16,871 crore as of 2024, according to Bangladesh Bank.
The advisory council's approval brings non-bank financial institutions under the fund, entitling their depositors to compensation in case of liquidation or merger.
The minimum premium for banks and non-banks is set at 0.50% of paid-up capital under the Deposit Protection Ordinance.
Why 5 banks being merged
The government through the chief adviser's official Facebook page said the central bank has launched a banking reform programme to restore governance, enforce accountability, and strengthen financial discipline.
"As part of the initiative, KPMG (Sri Lanka) and EY (Sri Lanka) were appointed to assess six troubled scheduled banks – First Security Islami Bank, Global Islami Bank, Union Bank, Exim Bank, Social Islami Bank, and ICB Islami Bank – through an Asset Quality Review (AQR)," the post said.
The AQR found massive classified loans, poor-quality investments, and severe capital shortfalls. Based on the findings, Bangladesh Bank recommended merging five of the banks under government ownership to form a single Shariah-compliant Islamic bank.
Despite over a year of liquidity support, the banks' financial conditions worsened.
With no realistic recovery prospect, bringing the five banks under the Bank Resolution process is essential to restore stability, rebuild depositor confidence, and ensure sustainable credit flow, as mandated under the Bank Resolution Ordinance, 2025.
Bangladesh Bank has proposed establishing a new state-owned bank to facilitate the merger. The five troubled banks will act as "transferor banks," while the new institution will serve as the "transferee bank."
The bank will operate professionally and commercially. Bangladesh Bank has prepared a 10-year financial and business plan, based on simulation exercises, to guide the consolidation into a single Shariah-compliant, government-owned entity.
