Five Islamic banks to merge, creating Bangladesh’s largest shariah bank

The interim government has begun formal steps to merge five troubled Islamic banks into the country’s largest state-owned shariah bank, aiming to stabilise the financial sector.

The merger, under the Bank Resolution Ordinance 2025, will require about Tk 35,200 crore in capital, with Tk 20,200 crore from the government and Tk 15,000 crore from institutional funds and deposit conversions. The banks involved are First Security Islami Bank, Union Bank, Global Islami Bank, Social Islami Bank, and Exim Bank.

Officials say the consolidation is necessary to avoid costly liquidations and restore confidence in shariah-compliant finance, amid severe mismanagement and non-performing loans exceeding 90 percent at three banks.

The decision was taken at a bank resolution meeting chaired by Finance Adviser Salehuddin Ahmed, attended by central bank officials including Governor Ahsan H Mansur. A six-member working committee, led by Deputy Governor Md Kabir Ahmed, will oversee the process, expected to be largely completed within six weeks.

Four of the lenders were previously linked to the S Alam Group, while Exim Bank was dominated by Nazrul Islam Mazumder of Nassa Group. Following the change of government in August 2024, Bangladesh Bank dissolved the previous boards and appointed new ones. Forensic audits revealed extremely poor financial health: non-performing loans stood at 96.37% (First Security Islami), 97.8% (Union), 95% (Global Islami), 62.3% (Social Islami), and 48.2% (Exim Bank).

Bangladesh now has Asia’s highest bad loan ratio at 20.2% of total loans in 2024, equivalent to $20.27 billion in distressed assets, marking a 28% year-on-year increase. Officials emphasised that the merger will protect employees’ jobs and strengthen banking stability without immediately seeking donor support.