Punam Shahriar Nirjhar: Bangladesh’s banking sector has suffered for years from weak governance, insider lending and misuse of bank funds. Several banks reached a dangerous financial position while ordinary depositors carried much of the risk. People deposit salaries, family savings and business money in banks because they trust the banking system. The recent crisis involving five Shariah based banks shows the depth of the problem. Their combined non performing loans reached Tk 1.47 lakh crore and default rates at some banks crossed 95 percent.
On 1 December 2025, Bangladesh Bank consolidated First Security Islami Bank, Social Islami Bank, Global Islami Bank, and Union Bank and EXIM Bank into one organization namely Sammilito Islami Bank PLC and gave huge capital support to it. However, the operational takeover of the five banks proceeded in stages throughout 2026. Bangladesh Bank assumed control of EXIM Bank on 30 July 2026 and First Security Islami Bank on 10 August 2026. Bangladesh Bank Governor Md Mostaqur Rahman inherited the five bank merger and accelerated its implementation. Under his leadership Bangladesh Bank expanded depositor withdrawal facilities and ensured full payment of entitled profits. The intervention was intended to stabilize the banking system and prevent a broader banking crisis by safeguarding depositors.
Parliament passed the Bank Resolution Act 2026 to create a legal process for dealing with failing banks. However, Section 18A created a serious concern. The provision restores ownership for the former directors and shareholders of the Banks that were merged after paying only 7.5 percent of the money injected by the government or Bangladesh Bank. The law allowed them to repay the remaining 92.5 percent within two years with simple interest of 10 percent. Even if public funds were used to save those banks, these advantageous arrangements might enable former owners to reclaim control. From a legal and financial standpoint this act diminished responsibility and imposed an unjust burden on public.
The main issue was moral hazard. Moral hazard arises when a person does not fully suffer the consequences of risky or irresponsible conduct. This is difficult to defend. Ownership of a bank gives financial benefit and control while it also creates duties. When significant mismanagement contributes to the institution’s demise, the person who benefits from owning a bank should also bear the loss.
The government’s decision to repeal Section 18A deserves recognition as it corrects a weakness in the original law. Good governance does not end with passing legislation. It requires the ability to review policy, respond to criticism and amend the law when public interest demands another course. The Cabinet approved the amendment on 10 August 2026, and Parliament passed the Bank Resolution (Amendment) Act 2026 on 9 September. The repeal made it impossible for previous owners to take back control of institutions that had been saved with public funds. This modification reinforces the idea that ownership entails accountability under banking law. When poor management leads to a bank’s demise then those who profit from owning it should also bear the repercussions.
This amendment provides Bangladesh Bank with a stronger position when dealing with distressed institutions. Effective bank resolution requires regulatory authority with legal certainty. Through this amendment the central bank will have more options to implement resolution measures without having to reverse interventions. The Bangladesh Nationalist Party led government has been focused on protecting depositors. These ordinary depositors tend to be the most uncertain and vulnerable group when a bank is in distress.
In Ukraine, serious financial misconduct resulted in the prohibition of the restoration of nationalised banks to their former bank owners. Shareholders from Banco Popular Bank of Spain lost their equity before the bank was transferred to a new owner. India followed a similar approach during the resolution of Lakshmi Vilas Bank. The legal systems of these countries are different, so Bangladesh should not copy them blindly. Still one common principle is clear. Shareholders and controlling owners must absorb losses before the public has to subsidize a failed bank.
The repeal of Section 18A is a step in the right direction, but it is not the end of all the banking sector problems in Bangladesh. Bangladesh Bank must continue strict supervision, ensure transparency in bank resolution and take legal action against insider fraud and misuse of funds. Banking policy should primarily rest on the interest of the depositors. The government and the Bangladesh Bank deserve credit for bringing correction in the weakness of the original law. Public funds should not be used for a financial insurance program that provides a second chance for those who have mismanaged or have been discredited.
The author is Student of Department of Law at East West university
