Bank Resolution Act set for revision
The government is preparing to remove a controversial provision in the Bank Resolution Act that critics say could have enabled former owners of troubled banks to regain control of financial institutions placed under resolution.
Finance Ministry sources said a policy decision has been taken to repeal Section 18(a) of the Act, a clause that allowed previous shareholders of a bank under resolution to apply to Bangladesh Bank for the return of its shares, assets and liabilities under certain conditions.
The Bank Resolution Act was enacted on 10 April after the BNP-led government converted an ordinance introduced by the interim administration into law. However, controversy emerged when Section 18(a) was incorporated into the legislation before its passage in parliament.
Under the provision, former shareholders could seek to reclaim ownership of a bank undergoing resolution. Bangladesh Bank was also authorised to consider applications from other qualified individuals, provided they met specified conditions, including repayment of any financial support extended by the government or the central bank.
The clause drew criticism from economists, opposition parties and governance watchdogs, who argued that it could create an opportunity for business groups previously associated with banking sector irregularities to regain control of failed institutions.
According to Finance Ministry and Bangladesh Bank officials, retaining the provision could put at risk approximately $1.65 billion in World Bank financing aimed at supporting financial sector reforms, strengthening Bangladesh Bank, reducing non-performing loans and helping finance fertiliser and fuel imports.
In a written response to the media, World Bank Country Director for Bangladesh and Bhutan Jean Pesme said a strong and adequately capitalised banking sector is essential for financial stability and private sector-led job creation.
He noted that the legal framework governing bank resolution should be aligned with international best practices to effectively address the challenges posed by weak and undercapitalised banks.
The issue has gained particular significance due to the merger of five financially distressed Islamic banks that were severely weakened by large-scale loan irregularities during the previous Awami League administration.
Under the Bank Resolution Ordinance issued on 25 May 2025, EXIM Bank, Social Islami Bank, First Security Islami Bank, Union Bank and Global Islami Bank were merged into Sammilit Islami Bank on 2 December last year.
Four of the five banks were previously controlled by S Alam Group, while EXIM Bank was owned by NASA Group.
The merged institution is burdened with around Tk1.47 lakh crore in defaulted loans, representing nearly 79 per cent of its total outstanding loan portfolio.
Among the five banks, Union Bank has the highest default loan ratio at 98 per cent, followed by First Security Islami Bank at 96 per cent, Global Islami Bank at 95 per cent, Social Islami Bank at 62 per cent and EXIM Bank at 48 per cent.
Following the formation of the BNP government, a 10-member committee headed by Md Azim Uddin Biswas, Additional Secretary of the Financial Institutions Division, was formed on 1 April to review and amend the ordinance.
Officials familiar with the committee’s work said its recommendations did not include any proposal allowing former owners to return to banks under resolution. Bangladesh Bank was reportedly also unaware of the proposal.
According to officials, Section 18(a) was inserted at a late stage before the bill was placed before parliament.
The provision subsequently drew objections from Transparency International Bangladesh (TIB), the Bankers Association of Bangladesh (BAB) and banking experts.
TIB warned that the clause could facilitate the rehabilitation of former shareholders deemed responsible for bank failures, potentially increasing the risk of renewed governance weaknesses. BAB leaders also raised concerns during a meeting with Bangladesh Bank Governor Mostaqur Rahman on 11 May.
Former World Bank chief economist for Bangladesh Md Zahid Hossain said the repeal would be a positive step, although its ultimate impact would depend on whether the provision is fully removed or replaced by another mechanism.
TIB Executive Director Iftekharuzzaman said the government should have acted independently to remove the clause, arguing that it was inconsistent with the administration’s reform agenda and the principles outlined in the July Charter.
With the banking sector continuing to grapple with high levels of bad loans and governance challenges, the planned repeal is being seen as an important test of the government’s commitment to financial sector reform and accountability.
