Banks’ financial health set for merger worsened

Staff Reporter:

Bangladesh Bank Deputy Governor Nurun Nahar has said that the financial health of the five struggling Islamic (Shariah-based) banks—now being merged—was relatively stable before 2017 but deteriorated sharply after they were taken over.

“Before 2017, these Islamic banks were not in such poor shape. But after the takeover, their condition worsened — funds were siphoned off, single-borrower exposure limits were violated,
and policy supports were misused under political influence,” she said at a seminar titled “Bangladesh’s Banking Crisis: Finding the Way Forward” organised by UNB on Friday.

She added that the situation would have been far better if the laundered funds had remained within the banks.

Nurun Nahar also noted that the central bank governor aims to reduce the number of banks in the country. “Merging five banks into one will leave us with a stronger, more resilient institution,” she said.

The government has already approved the merger of the five troubled banks to form a new Islami bank with Tk35,000 crore in paid-up capital.

Criticising the past trend of granting bank licences based on group interests, she remarked, “Earlier, it was like — one group got a bank, so another wanted one too; the police should have a bank, the army should have a bank. Such thinking was unnecessary. Even foreigners are surprised at how many banks we have.”

She emphasised the need to address the consequences of past irregularities. “If depositors’ money is looted or laundered, it’s deeply painful. Why should they suffer? Those responsible must face legal consequences,” she said, adding that both the central bank and the boards of commercial banks share responsibility.

The deputy governor also said that at one time, non-performing loans (NPLs) were hidden from the public. “Many banks lack the capacity to pay dividends, yet some still did so after 5 August despite high NPLs,” she noted.

She admitted that political interference limited the central bank’s actions. “If someone defied political orders and left their job, their replacement would likely comply — that was the reality,” she added.