In a landmark move to stabilize the country’s troubled banking sector, the Advisory Council has approved the merger of five financially distressed Shariah-based private banks into a single state-owned Islamic bank. The decision marks the formal beginning of a historic resolution process, as part of the government’s newly endorsed “Resolution Plan 2025.”
The banks set to be merged are First Security Islami Bank PLC, Global Islami Bank PLC, Union Bank PLC, EXIM Bank PLC, and Social Islami Bank PLC — all of which have faced acute financial distress in recent years, including liquidity crises, excessive non-performing loans, capital shortfalls, and poor governance.
According to Bangladesh Bank sources, despite multiple liquidity injections by the central bank, the financial conditions of these banks continued to deteriorate, prompting the government to take decisive action.
The new bank will have an authorized capital of BDT 40,000 crore and a paid-up capital of BDT 35,000 crore.The government will inject BDT 20,000 crore, half in cash and half via Sukuk bonds.The remaining BDT 15,000 crore will come from a bail-in mechanism, converting a portion of institutional depositors’ funds into equity.Retail depositors’ funds will be fully protected, with fallback support from the deposit protection fund if needed.
Initially under full government ownership, the new bank is expected to be gradually privatized through stock market listing in phases.
A joint assessment by KPMG (Sri Lanka) and Ernst & Young (Sri Lanka) highlighted serious structural issues in the banks, including mismanagement, weak risk controls, and lack of transparency in loan disbursement. Citing these findings, the government has also vowed to pursue legal action against negligent board members, corrupt officials, and borrowers involved in financial misconduct.
Notably, shareholders of the merged banks will not receive any compensation, as their net asset positions have turned negative.
Officials hope this sweeping reform will restore public confidence, enforce discipline in the banking sector, and reinforce overall economic stability.
“This is a bold but necessary step to protect the integrity of the financial system,” said a senior official from the Financial Institutions Division.