The collapse of Sheikh Hasina’s government on August 5, 2024, ripped the veil off Bangladesh’s banking sector, exposing a grim reality of mismanagement, corruption, and defaulted loans. Among the hardest hit are five Islamic banks – First Security Islami Bank, Social Islami Bank, Global Islami Bank, Union Bank, and Exim Bank – now slated for a historic merger by Bangladesh Bank.
This ambitious plan promises to create the country’s largest Islamic bank, but it is stirring unease among customers fearing for their deposits and employees bracing for job cuts. As the nation navigates a turbulent post-revolution landscape, can this merger restore stability, or is it a leap into deeper uncertainty?
A banking sector in crisis
For years, political interference and lax policies obscured the true state of Bangladesh’s banks.
Post-August 2024, the numbers tell a stark story: the five Islamic banks hold Tk 147,368 crore in deposits but have disbursed Tk 190,484 crore in loans, of which a staggering Tk 146,918 crore or 77 per cent is non-performing.
Their combined paid-up capital is a mere Tk 5,819 crore, dwarfed by deficits and losses. With 9.2 million customers and 16,000 employees, these banks are teetering on the edge, some struggling to return deposits.
The Asset Quality Review (AQR) by Bangladesh Bank paints a dire picture:
First Security Islami Bank: Tk 60,915 crore in loans against Tk 43,143 crore in deposits; 95 per cent (Tk 58,182 crore) defaulted; 206 branches; Tk 405 crore loss.
Social Islami Bank (SIBL): Tk 35,220 crore in loans against Tk 30,977 crore in deposits; 67 per cent (Tk 23,575 crore) defaulted; 181 branches; Tk 53 crore loss.
Global Islami Bank: Tk 14,427 crore in loans against Tk 12,313 crore in deposits; 94 per cent (Tk 13,569 crore) defaulted; 104 branches; Tk 214 crore loss.
Union Bank: Tk 28,279 crore in loans against Tk 17,942 crore in deposits; 94 per cent (Tk 26,491 crore) defaulted; 114 branches; Tk 800 crore loss.
Exim Bank: Tk 51,642 crore in loans against Tk 42,993 crore in deposits; 49 per cent (Tk 25,101 crore) defaulted; 155 branches; Tk 409 crore loss, with a Tk 15,117 crore provision deficit.
These figures, coupled with the International Monetary Fund’s threshold for liquidation or restructuring (30 per cent default rate), justify Bangladesh Bank’s urgency. Yet, the merger plan has sparked both hope and scepticism.
A vision for stability
The proposed merger aims to create a powerhouse Islamic bank with 779 branches, 698 sub-branches, 500 agent outlets, and over 1,000 ATMs. By consolidating resources, Bangladesh Bank envisions cost reductions, enhanced technology use, and a stronger rural banking presence.
Governor Dr Ahsan H Mansur, speaking at a recent press conference, emphasised, “This is not tied to elections but is an ongoing process to be implemented within months. No jobs will be lost; only excess branches may shift to rural areas.”
Economist M Helal Ahmed Joni of Change Initiative sees potential: “If executed realistically, this merger could birth a financially self-sufficient Islamic bank, restoring depositor confidence and ensuring withdrawals.” The plan includes governance reforms, with independent directors appointed to four banks’ boards (excluding Exim) post-August 2024, aiming to curb past mismanagement.
Voices of Concern
Despite the optimism, the merger has triggered alarm. Customers fear for their savings, with some banks already reporting deposit withdrawals. Employees worry about job security, despite assurances, as branch rationalization looms. Exim Bank, the least troubled of the five, has resisted the merger, claiming financial independence. Its 49 per cent default rate, however, far exceeds IMF guidelines, and Bangladesh Bank’s AQR disputes its self-reliance.
Exim’s Bank’s defiance
Exim Bank’s objection highlights tensions in the merger process. Its claim of strength is undermined by a Tk 15,117 crore provision deficit, and Bangladesh Bank remains firm, though open to reconsideration if “logical reasons” are provided. The central bank’s push aligns with global standards but faces domestic scepticism, with critics questioning whether merging five fragile institutions can yield a robust one without addressing root causes like corruption.
The merger’s success hinges on transparency and execution. If successful, it could stabilize a sector serving 9.2 million customers and bolster Bangladesh’s Islamic finance market, a key economic driver. Failure, however, risks deepening distrust, especially as the interim government navigates trade challenges and political reforms like the July Charter.
A high-stakes experiment
As Bangladesh rebuilds post-revolution, the banking sector stands at a crossroads. The merger of five Islamic banks is a bold gamble to restore confidence and efficiency, but it’s fraught with risks—customer panic, employee uncertainty, and Exim’s resistance. Governor Mansur’s assurances offer hope, but the shadow of past mismanagement looms large. In a nation where economic stability is as crucial as political unity, the merger’s outcome will shape not just the banks, but the trust of millions in a new Bangladesh.