Bangladesh Bank plans five-bank merger by November

NN ONLINE:

Bangladesh Bank has said the process of merging five debt-ridden banks linked to S Alam Group is moving fast and is expected to be completed by mid-November this year.

Earlier this week, the finance ministry approved a draft proposal to merge Exim Bank, Social Islami Bank, First Security Islami Bank, Global Islami Bank and Union Bank into a single state-owned entity. Work on the consolidation has already started, according to central bank officials.

“Every task related to the bank merger is progressing fast. The major concern was ensuring required capital for the process. Since it has already been decided that the new bank will be state-owned and the financing has been approved, we expect the merger to be completed by November,” Bangladesh Bank spokesperson and Executive Director Arief Hossain told UNB.

The new entity will operate as a Shariah-based Islamic bank, with the government injecting Tk 20,000 crore as fresh capital from the national budget. The merged bank’s total initial capital is projected at Tk 35,000 crore, a senior finance ministry official said preferring anonymity.

To expedite the process, Bangladesh Bank has formed a working committee led by Deputy Governor Kabir Ahmed. The panel will oversee the entire merger process, with its top priority being the protection of depositors’ funds.

“Once the merger is completed, small depositors will be paid first if they wish to withdraw. Large depositors have nothing to fear since the government is taking responsibility for their funds. However, we urge them not to rush for withdrawals,” Arief said.

Officials acknowledged that one of the biggest challenges could come from potential lawsuits by opponents of the merger. The central bank is, however, confident the process will not be derailed.

“The governor has made it clear that if any case is filed, it will be handled through the Attorney General’s office. Bangladesh Bank is ready for all kinds of legal battles,” said an official. No final decision has yet been made about the fate of employees at the five banks or whether their scattered branch networks will be rationalised.

But all five banks’ boards of directors will be dissolved immediately after the merger, with Bangladesh Bank forming a new board and initially taking charge of operations until a final governance structure is decided. Over the past 15 years, S Alam Group and its affiliates allegedly borrowed thousands of crores of taka under various names from these banks, leading to massive loan defaults.

According to Bangladesh Bank data, the combined default loans of the five banks stand at around Tk 1.47 lakh crore — about 77% of their total outstanding loans. Among them, Union Bank is in the worst condition with 98% of its loans defaulted, followed by First Security Islami Bank 96%, Global Islami Bank 95%, Social Islami Bank 62% and Exim Bank 48%.