B Mirror Report: The government’s plan to return five merged Islamic banks to their former owners has sparked controversy and created tension with key development partners, officials say, making the move increasingly difficult to implement.

Last month, parliament passed the Bank Resolution Act 2026, amending the earlier Bank Resolution Ordinance 2025 under which the interim government had initiated the merger of five troubled shariah-based banks as part of broader financial sector reforms.

However, the finance ministry inserted a provision in the revised law allowing former shareholders to regain control of the banks by repaying government-injected funds on highly flexible terms. Under the provision, ex-owners would initially need to pay only 7.5 per cent of the state support, with the remaining 92.5 per cent payable over two years along with 10 per cent simple interest.

The decision has drawn strong criticism from economists, academics, and anti-corruption observers, who argue it risks undermining banking sector reforms and accountability.

Officials said the original ordinance was shaped with guidance from international development partners, including the International Monetary Fund (IMF) and the World Bank, as part of efforts to stabilise the financial sector and rescue struggling banks. The IMF had played a significant role in drafting the framework for resolution.

However, the new government’s move to restore control of the banks to former owners—some of whom are accused of large-scale financial irregularities—has reportedly angered both the IMF and the World Bank.

According to finance ministry sources, this dissatisfaction is already affecting external financing. The IMF has delayed the release of two tranches worth $1.3 billion under a $5.5 billion credit programme, with the bank return plan cited as one of the concerns.

The government has also sought a $500 million budget-support loan from the World Bank to help manage fiscal pressures, including higher fuel and gas import costs amid global market disruptions. In response, the World Bank has reportedly attached several conditions, including repeal of Section 18(A) of the Bank Resolution Act 2026, which enables restoration of former ownership.

Officials acknowledge that development partners are increasingly uneasy about the direction of financial sector reforms. A senior finance division official said the amendment to the resolution framework has significantly strained relations with multilateral lenders.

He added that the World Bank has also recommended broader fiscal and institutional reforms, including restructuring the National Board of Revenue, improving tax collection, introducing a single VAT rate, and reducing corporate tax rates.

Another official said these conditions are under consideration and will be placed before the finance minister for a final decision, noting that budget support is urgently needed despite the reform demands.

Meanwhile, Transparency International Bangladesh (TIB) has criticised the inclusion of provisions that could allow former owners to regain control, warning that it may reintroduce systemic corruption risks in the banking sector. It said the move could weaken accountability and revive a culture of impunity instead of addressing long-standing governance failures.