A major restructuring move in Bangladesh’s banking sector is underway with the approval of the interim government to merge five Shariah-based banks into a unified institution, Sammilito Islami Bank PLC. The merger, which involves Exim, First Security Islami, Global Islami, Social Islami, and Union, is being spearheaded by the Ministry of Finance and Bangladesh Bank.
The new bank is expected to begin operations by December 2025, with an authorised capital of Tk 40,000 crore and paid-up capital of Tk 35,000 crore. The government plans to inject Tk 20,000 crore into the new entity—half in cash and the rest through Sukuk bonds—while around Tk 15,000 crore will be converted into shares through a ‘bail-in’ process, covering institutional depositors’ dues.
A Struggling Sector
The five banks involved in the merger have been grappling with liquidity problems and a lack of fresh deposits. Bangladesh Bank’s previous liquidity support ended months ago, worsening the situation. Although the banks are still operational, disruptions in business activities have led to growing customer complaints, especially regarding difficulties in withdrawing deposits. This has sparked frequent disputes between customers and bank officials, some of which have escalated into physical altercations.
Economists attribute these problems to years of mismanagement, with Dr Zahid Hussain, former Chief Economist at the World Bank’s Dhaka office, stating that these issues are the result of prolonged financial instability in the sector. “Depositors will only receive their money once the new bank is formed, but it’s unfortunate that customers are suffering in the meantime,” he remarked.
According to Mohammad Nurul Amin, Chairman of Global Islami Bank, the situation is critical: “Loans are not being recovered, and new deposits are not coming in. Returning depositors’ money has become increasingly difficult.”
A Roadmap for Repayment
To address the issue of depositors’ dues, Bangladesh Bank has prepared a detailed roadmap, which will be published in the government gazette soon. It is expected that depositors will begin receiving their money within six months, with a maximum timeframe of five years for repayment. Small depositors (savings up to Tk 2 lakh) will be given priority, with their funds to be returned immediately after the merger.
The new entity, Sammilito Islami Bank, will operate as a government-owned bank, and all assets and liabilities of the five institutions will be absorbed into this new entity. A key focus post-merger will be ensuring the repayment of small depositors’ funds, while larger creditors will be paid in stages.
Challenges and Costs of Integration
The merger will have significant operational and manpower challenges. The five banks currently employ over 18,000 staff members, at an annual cost of around Tk 2,000 crore. Experts warn that maintaining such a large workforce and cost structure within the merged entity may prove unsustainable. Additionally, the process of consolidating 761 branches, with many overlapping in the same districts, will require careful restructuring. Some branches may be relocated to upazila or less-served areas to optimise operations.
The defaulted loans of the five banks are also a major concern, with figures from 2024 showing billions in non-performing loans across the institutions. If these liabilities are transferred to the new bank, it could place significant strain on its financial stability.
The Road Ahead: Can the Merger Succeed?
While the merger aims to streamline operations and stabilise the Islamic banking sector, doubts remain about its long-term success. If the merged bank cannot effectively manage its finances and workforce, it risks becoming another Bangladesh Development Bank (BDBL)—a bank formed through a merger in 2009 that has struggled financially ever since.
Prof Md Maksudur Rahman Sarkar from Dhaka University warns, “We do not want another BDBL. Unless the culture of impunity is addressed, the merger will not bring the expected benefits.” Ahsan Ullah, an adviser to the governor of Bangladesh Bank, counters that if the new bank can ensure good governance and accountability, it has the potential to set new standards for Islamic banking in the country.
The success of the merger will depend on whether it can overcome past mistakes, implement necessary reforms, and regain depositor trust.