Mergers proposed10 troubled banks in Bangladesh drown in massive loan defaults

A group of weak banks, including those linked to S Alam and others, are floundering under non-performing loans (NPLs) amounting to Tk1.3 lakh crore, dragging the country’s banking sector into a prolonged crisis.

Pervasive irregularities over the past decade and a half have severely affected these banks—mostly Shariah-based—which are said to have borne the brunt of extensive misappropriation.

As a result, these financial institutions have seen a worrying rise in NPLs. Despite reforms within their boards of directors, little meaningful progress has been achieved.

According to Bangladesh Bank data, 10 banks operating under Shariah principles currently hold defaulted loans totalling a staggering Tk1.3 lakh crore, accounting for over 23 percent of their total loan disbursements.

Efforts by the central bank to tackle the crisis—such as dissolving the boards of these struggling banks—have produced limited results. Even capital injections have failed to restore depositor confidence.

In response, the central bank’s Governor, Dr Ahsan H Mansur, has proposed merging some of the weaker banks into two larger entities.

Although the proposal has been met with cautious optimism, analysts remain divided over its viability.

They warn that forced mergers may not deliver the desired outcomes.

Dr Shah Md Ahsan Habib, a professor at the Bangladesh Institute of Bank Management (BIBM), told UNB, “I am in favour of mergers, but not of forcing them. The balance sheet of one bank would be merged with another, and their operations integrated.

“Therefore, forcing these mergers is not advisable. I hope they succeed, but I have my doubts.”

Mohammad Nurul Amin, Chairman of Global Islami Bank, said, “No forensic audits, damage assessments or valuations have been conducted yet. It is also unclear whether a bridge bank structure will be used. There is no issue with forming two large banks. We support that. But combining two major negative narratives could result in a significantly adverse impact.”

Experts argue that it will be difficult to restore normalcy in several of the troubled Shariah-based banks. Some have proposed turning these merged institutions into sector-specific specialised banks, although there are differing opinions on the idea.

Amin suggested, “Sector-based banks—such as one for the textile sector—could be considered. A separate bank for SMEs or any other targeted arrangement could work. Assigning specific responsibilities, similar to what Krishi Bank has, isn’t a bad idea in principle.”

Prof Ahsan said, “Our experience with specialised banking isn’t encouraging. A bank focused on just one or two activities may not be effective. We’ve heard these arguments before. BRAC Bank began as an SME-focused bank. But success requires more than a narrow focus.”

Bangladesh Bank has confirmed that a task force has been established to address the crisis and that a Bank Resolution Act is currently being drafted. This new law will offer detailed guidelines on the merger process.

Arif Hossain Khan, Executive Director and spokesperson of Bangladesh Bank, explained to UNB, “Some banks may be merged, while others could be acquired. The actual outcomes and the procedures involved will be detailed in the Bank Resolution Act.”

While bank mergers are inherently complex, crafting a universally acceptable policy poses an even greater challenge. Once that task is accomplished, the subsequent steps should be more straightforward, he added.

Meanwhile, Bangladesh Bank has indicated that it will need additional time to receive the task force’s report on the potential mergers and other actions regarding these ailing institutions.