Banking reform at risk under new Act
The newly enacted Bank Resolution Act, 2026 has sparked widespread concern among anti-corruption watchdogs, economists and political observers, who warn that the law could undermine recent reform efforts and weaken accountability in Bangladesh’s troubled banking sector.
Transparency International Bangladesh (TIB) has strongly criticised the legislation, arguing that provisions allowing former owners of failed or merged banks to regain control risk reopening the door to past irregularities.
In a statement issued on Monday, the organisation said the law could turn the sector back into a “haven for corruption and plunder”, undermining efforts to address long-standing governance failures.
At the centre of the controversy is Section 18(a), which reverses a key safeguard contained in the earlier 2025 ordinance.
Under that framework, individuals linked to the collapse of banks were barred from returning to ownership — even if they repaid funds.
The new law removes that restriction, allowing former shareholders to reclaim stakes under certain conditions.
TIB Executive Director Dr. Iftekharuzzaman warned that the move effectively institutionalises impunity.
“Whatever justification the government may offer, this decision does not ensure legal accountability; instead, it rewards those responsible on a massive scale,” he said, cautioning that the sector could once again fall prey to “policy capture” and entrenched vested interests.
The financial terms under the law have also drawn scrutiny. Former owners may reportedly regain control by paying just 7.5 per cent of the funds injected by the government or Bangladesh Bank upfront, with the remaining 92.5 per cent payable over two years at 10 per cent simple interest.
Critics question whether such terms are sufficient to ensure genuine recapitalisation, repayment to depositors and creditors, and the restoration of regulatory compliance.
The law follows earlier efforts by the interim administration to stabilise five Shariah-based banks — First Security Islami Bank, Social Islami Bank, Union Bank, Global Islami Bank and EXIM Bank — through a merger into a state-backed entity.
At that time, former owners, many accused of financial misconduct, were excluded from participation.
The government and the central bank injected Tk 35,000 crore to support the restructuring process.
These banks were previously linked to controversial business groups, including the S Alam Group and Nassa Group.
Under the new act, however, former directors or investors may reapply for ownership, subject to conditions such as repaying public funds, injecting fresh capital and settling outstanding liabilities.
Officials within Bangladesh Bank have expressed reservations over the practical implications. Concerns persist as to whether previous owners can meet financial obligations, restore governance standards and ensure depositor protection.
They also note that, once ownership is returned, reversing such a decision could prove difficult.
Economists share similar concerns. Zahid Hussain, a former World Bank lead economist in Dhaka, warned that allowing previous owners to return could nullify the restructuring process.
“If everything can be reversed through a legal adjustment, it raises serious doubts about the sustainability of institutional reform,” he said to media, adding that the law risks reinforcing a culture of impunity where wrongdoing goes unpunished.
Political reactions have been equally critical. Analysts and opposition figures argue that the legislation runs counter to reform commitments made following the 2024 political transition.
They fear it may facilitate the rehabilitation of individuals and groups widely blamed for financial instability arising from loan scams, money laundering and governance failures.
Bangladesh’s banking sector continues to face mounting stress, with non-performing loans reaching Tk 5.44 lakh crore as of December 2025. A significant share of these is linked to a small number of large defaulting entities.
Observers warn that allowing former stakeholders to regain control without full accountability could further weaken asset quality and heighten systemic risks.
Global rating agency Moody’s has already maintained a negative outlook on Bangladesh’s banking system, citing weak governance, rising bad loans and a deteriorating operating environment.
Critics also caution that the new framework may shift financial risks onto the public. Under the guise of stabilising banks, it could lead to further defaults or insolvencies, ultimately increasing the burden on taxpayers if reforms fail.
While the law includes provisions for due diligence, regulatory oversight and conditional approvals, sceptics question whether enforcement will be effective, given past weaknesses in supervision and potential conflicts of interest.
TIB and other stakeholders have urged the government to reconsider the legislation, emphasising that sustainable reform must prioritise transparency, accountability and strong governance.
As debate intensifies, the Bank Resolution Act is increasingly seen as a critical test of Bangladesh’s commitment to financial sector reform — and whether recent progress can withstand competing political and economic pressures.
