Amendment Allows Reclaiming Distressed Banks

An amendment to the Bank Resolution Ordinance has established a legal mechanism enabling former owners of distressed banks to regain control of institutions currently under resolution in Bangladesh.

The revision is particularly relevant to the ongoing consolidation of five troubled banks—First Security Islamic Bank, Social Islamic Bank, Union Bank, Global Islamic Bank, and Exim Bank—into Sammilito Islami Bank under earlier reform measures introduced by the interim government.

Under the amended provision, passed in parliament on Friday, former shareholders may apply to the Bangladesh Bank for permission to reacquire shares, assets, and liabilities. Approval of such applications could ultimately result in the dissolution of the newly formed merged entity.

Of the five institutions, four were previously controlled by S Alam Group chairman Saiful Alam, while Exim Bank was under the control of Nassa Group chairman Nazrul Islam Mazumder.

Conditions for regaining ownership

The amendment introduces Section 18A, which sets out strict conditions for applicants seeking to reclaim control. These include submitting a formal undertaking to repay all funds as determined by the government or central bank, injecting fresh capital, and restoring financial stability.

Applicants must also settle all obligations to depositors and creditors, clear outstanding tax liabilities, and rebuild risk management and compliance systems.

Financially, the framework requires an initial payment order equivalent to at least 7.5% of the total assessed amount within three months of approval. The remaining 92.5% is to be paid over two years, carrying a 10% simple interest rate.

Following approval, Bangladesh Bank will supervise the institution for a two-year period. A special committee will then review compliance, with authority to revoke approval if conditions are not met.

Government position on reform approach

Finance Minister Amir Khosru Mahmud Chowdhury described the amendment as a “market solution” intended to promote fairness, equity, and protection of investment.

He stated that the state has already invested approximately Tk80,000 crore in weak banks and may require a further Tk1 lakh crore, describing this as an unsustainable burden in the prevailing global economic context.

According to the minister, the new framework shifts responsibility for recapitalisation and liability settlement onto applicants, thereby reducing pressure on the government and the Deposit Insurance Fund. He also noted that eligibility is not restricted solely to former owners, as any suitable party approved by the central bank may apply. He further argued that maintaining operational banks helps preserve asset value and safeguard employment.

Expert criticism of the amendment

The measure has been strongly criticised by banking sector experts, including those involved in earlier reform design. Critics argue that the change undermines the credibility of the broader resolution framework and weakens accountability in the banking sector.

Zahid Hussain, former lead economist of the World Bank’s Dhaka office and a member of the interim government’s banking reform task force, said the amendment effectively provides a pathway for former owners to regain control of banks that became distressed due to mismanagement and alleged fund misappropriation.

He estimated that the total required payment for the five merged banks would be around Tk35,000 crore, noting that the terms could allow former owners to meet the initial 7.5% requirement and finance the remainder through the banking system.

Impact on Sammilito Islami Bank

According to Mr Hussain, the future of Sammilito Islami Bank will depend on the decisions of returning owners. He stated that if they opt to separate the merged institutions again, the consolidated bank would cease to exist.

He further warned that the amendment may signal to the market that individuals linked to financial irregularities could still regain ownership positions within the banking sector.

Summary of affected banks