BM Desk : A sizable Islamic bank is being formed from five Sharia-based banks that are experiencing financial difficulties. At the start of the new bank’s existence, the government will supply funds. Financing the small and medium-sized business (SME) will be the bank’s primary responsibility. This bank will receive a license from Bangladesh Bank. It will be used to transfer the assets and deposits of these five banks. This procedure will begin following the Eid vacations.

On Wednesday, Bangladesh Bank called the managing directors (MDs) and chairmen of the five banks to let them know about this preliminary decision. After speaking with representatives from Bangladesh Bank and the five banks that attended the meeting, this information was discovered. They claimed that there would be no issues with consumer transactions even if the banks were to merge. The new bank will instantly accept them as customers. Moreover, bankers who are not at the highest level will continue to work till the merger procedure is finished. This technique is known to take a minimum of three years to finish. During the conference, the banks were asked to prepare for the merger.

The five banks are Exim Bank, Union Bank, Social Islami Bank, Global Islami Bank, and First Security Islami Bank. At a banking conference on April 9, Bangladesh Governor Ahsan H. Mansur had previously declared that Islamic banks would combine to become two sizable banks.

Businessman Nazrul Islam Majumder, who is allied to the Awami League, owns Exim Bank, one of the five banks that will be merged. The S Alam Group, which is connected to former Prime Minister Sheikh Hasina, owns the remaining four banks. These owners took money out of these banks under various identities when the previous government was in power. The banks were weakened as a result.

The five banks are First Security Islami Bank, Global Islami Bank, Union Bank, Social Islami Bank and Exim Bank. Earlier, Bangladesh Governor Ahsan H Mansur had said at a banking conference on April 9 that Islamic banks would be merged to form two large banks.

It has been announced that Bangladesh Bank will take charge of managing five banks following the Eid holidays. To facilitate this, Bangladesh Bank will establish a dedicated committee comprising relevant bank officials. An asset quality audit for these five banks has already been conducted by a foreign institution. Bangladesh Bank will allow these banks to raise any objections regarding the audit report. Should any bank demonstrate its strength, it will be removed from the list; otherwise, the merger process will commence. This procedure will be initiated under the Bank Resolution Ordinance 2025 and is expected to conclude by October 15.

As part of the merger, the non-performing loans of the banks will be assigned to the Asset Management Company (AMC). The transfer will be executed in a manner that ensures the new bank’s defaulted loans remain below 10 percent. This strategy aims to lower the costs associated with foreign trade transactions, enabling the bank to access funds from the Bangladesh Bank’s refinancing facility.

Subsequently, a new bank license will be granted. The Bangladesh government, along with foreign development partners, will contribute capital for this initiative, with budget allocations made for the fiscal year 2025-26. The assets and liabilities of the five banks will be consolidated into this new entity. Following this, the branches of the banks will be gradually integrated, which will also involve a reduction in workforce. Once the bank is fully operational, shares will be offered to the private sector, allowing private sector entrepreneurs to participate in the bank’s management. It is anticipated that this entire process may take a minimum of three years to finalize.

Sources indicate that Governor Ahsan H Mansur and Deputy Governor Kabir Ahmed briefed the chairmen and managing directors of the five banks about this decision during a meeting at Bangladesh Bank yesterday afternoon. The chairmen of Exim Bank and Social Islami Bank noted in the meeting that their financial conditions have improved among the five banks.

Global Islami Bank Chairman Mohammad Nurul Amin informed Prothom Alo that the five banks have been notified about the establishment of a large bank. Should any bank demonstrate its capability beforehand, it will be excluded from the list. To facilitate this, all parties have consented to collaborate with Bangladesh Bank. The bank resolution process has commenced through this meeting.

These banks employ over 15,000 individuals. The cumulative number of customer accounts across these banks stands at 9.2 million. The total deposits amount to 1.45 trillion taka, while the loans total 2.15 trillion taka. The banks have extended more loans than they have deposits by borrowing from Bangladesh Bank and other financial institutions.

As per Bangladesh Bank, there are 779 branches of these five banks nationwide. Specifically, First Security Bank operates 226 branches, Social Islami Bank has 180, Union Bank has 114, Global Islami Bank has 104, and Exim Bank has 155. Additionally, these banks manage 698 sub-branches, 500 agents, and 1,000 ATM booths.

The banks employ over 15,000 staff members. The total number of customer accounts for these banks is 9.2 million. The deposits total 1.45 trillion taka, while the loans amount to 2.15 trillion taka. The banks have issued more loans than they have in deposits by borrowing from Bangladesh Bank and various other banks.

According to Bangladesh Bank, 90 percent of the loans from Union Bank and Global Islami Bank are linked to the S Alam Group, which is facing default. Additionally, 70 percent of First Security Islami Bank’s loans and 20 percent of Social Islami Bank’s loans are associated with S Alam. Furthermore, 10 percent of Exim Bank’s loans pertain to the interests of former chairman Nazrul Islam Majumder. The banks are struggling to recover these loans.

First Security Islami Bank Chairman Mohammad Abdul Mannan stated to Prothom Alo that Bangladesh Bank has declared the establishment of a large-scale Islamic bank in the country. This initiative may open new opportunities for the Islamic banking sector within the nation.

Nevertheless, former Bangladesh Bank Chief Economist Mustafa K. Mujeri stated that without restoring accountability, the banking sector cannot be improved, even through bank mergers. He expressed to Prothom Alo that if banks continue to be subjected to political exploitation and essential reforms in the financial sector are not implemented, progress will be unattainable. To achieve this, it is crucial to prioritize good governance and accountability. Over the past nine months, good governance has not been fully reinstated in the financial sector. The inability of banks to recover during this period raises significant concerns.

Mustafa K. Mujeri further remarked that consolidating and effectively managing banks would be beneficial. Thus, the key factors are who will oversee them and the extent to which good governance will be adhered to.