The International Monetary Fund (IMF) has sought detailed information about the merger of five struggling banks in Bangladesh, initiated by Bangladesh Bank in an effort to stabilise the country’s financial sector. The IMF delegation, which is currently in Dhaka, raised several key questions during meetings with officials from the Ministry of Finance, the Department of Financial Institutions, and Bangladesh Bank on 1st November.
The banks involved in the merger are: First Security Islami Bank, Social Islami Bank, Global Islami Bank, Union Bank, and EXIM Bank. Four of these banks were previously controlled by the controversial S Alam Group, a conglomerate with close ties to the ruling Awami League government. EXIM Bank, meanwhile, was under the control of another business figure with close ties to the Awami League, Nazrul Islam Majumdar.
The IMF delegation is in Dhaka to discuss the disbursement of the sixth instalment of a loan from the IMF, as part of ongoing financial assistance to Bangladesh. During their visit, which began on 29th October, they have been meeting with various stakeholders to assess the country’s financial situation and the effectiveness of the ongoing reforms.
One of the key issues raised by the IMF officials is the process by which these five banks will be merged. They are particularly concerned with how the merger will affect depositors, how capital will be raised to facilitate the merger, and how depositors will be repaid. The IMF has also asked why these banks are not being dissolved despite their increasing non-performing loans and severe capital shortfalls.
Furthermore, the IMF has questioned why the staff of these struggling banks continue to receive salaries and bonuses, given the dire financial situation. They have expressed concern over the prolonged restructuring efforts and the potential risks posed to the financial sector by keeping these banks operational in their current weakened state.
According to reports, a roadmap for the merger of the five banks has been drawn up, and the government is expected to announce it via a government gazette in the near future. The roadmap will outline the repayment schedule for depositors and other crucial details related to the merger process. It has been confirmed that deposits of up to 200,000 BDT will be classified as “secured deposits” and will be repaid immediately following the merger.
In terms of the repayment schedule, deposits of up to 200,000 BDT in savings or current accounts will be the first to be repaid. Larger deposits will be reimbursed in instalments, with up to six payments of 100,000 BDT each over a period of 6 to 24 months. After 24 months, any remaining balance will be repaid in full. Fixed deposits with terms of three months or more will be considered secured deposits, and holders will be able to withdraw these funds after the gazette’s effective date.
As for deposits with longer-term fixed terms, the plan stipulates automatic renewals based on the length of the deposit: three-month deposits will be renewed three times, six-month deposits will be renewed twice, and deposits with terms of one year or longer will be renewed once before they are eligible for withdrawal.
Additionally, the draft circular states that individuals over the age of 65, as well as those suffering from cancer, will be exempt from the standard conditions. These depositors will be eligible to withdraw up to 30% of their remaining balance as an investment or loan facility.
The merger will result in the creation of a new state-owned Islamic bank. Two potential names for this bank have been suggested: United Islami Bank Limited and Sammilita Islami Bank Limited. The new bank will have an authorised capital of 400 billion BDT, with 350 billion BDT in paid-up capital. According to the government’s plan, nearly 150 billion BDT will be converted into equity through a bail-in process, while the government will contribute the remaining 200 billion BDT in capital support—half of it in cash and the other half through Sukuk (Sharia-compliant bonds).
The new bank’s board will consist of nine directors: five appointed by Bangladesh’s central bank, and four nominated by the major shareholders. The directors will serve a one-year term, with the Ministry of Finance holding ownership of the bank on behalf of the government. The government plans to gradually transfer ownership of the bank to the private sector, with a strategic partner to be introduced within three years and full privatisation expected within five years.
The IMF’s scrutiny of these banking reforms is part of a broader effort to ensure that Bangladesh’s financial sector is stabilised, and that public confidence in the banking system is restored. As the process moves forward, the success of these mergers and the broader financial reforms will be crucial to Bangladesh’s economic future.