The newly passed banking law has triggered widespread debate and unease across the financial sector, amid concerns it could allow former owners of several troubled Islamic banks – the controversial S Alam Group and Nassa Group – to regain control.
The discussion intensified after parliament passed the Bank Resolution Bill on Friday, with officials inside Bangladesh Bank also expressing discomfort and concern.
Many see the law as a potential pathway for the return of these influential groups with strong connections with the ousted Awami League era.
Both groups have faced serious allegations of banking fraud, large-scale money laundering and illegal asset acquisition.
At the centre of the debate is a new provision – Section 18A – which some economists and senior central bank officials say could reopen the door for previous shareholders of five merged banks.
Under the new clause, individuals who held shares before the banks were brought under resolution, or others deemed suitable by Bangladesh Bank, may apply to reacquire shares or take over assets and liabilities.
Critics say the financial terms attached to the provision have raised further questions.
The government and the central bank had injected large sums to stabilise the merged entity, but the law does not require full repayment before ownership can be transferred.
Instead, applicants would need to submit a pay order covering just 7.5 per cent of the injected funds within three months of final approval.
The remaining 92.5 per cent can be repaid over two years, with a simple interest rate of 10 per cent.
A Bangladesh Bank official, speaking to TIMES of Bangladesh on condition of anonymity, said this could effectively allow former owners to regain control at a relatively low upfront cost.
“In practice, once ownership is restored, it may be difficult to reverse it again,” the official said.
The arrangement has drawn scrutiny because four of the five banks merged into the combined Islamic bank were previously linked to the S Alam Group, while one was associated with Nassa Group Chairman Nazrul Islam Mazumder.
As a result, some analysts see the new clause not merely as a technical resolution mechanism, but as a potential pathway for the return of influential business groups.
Concerns have also been raised about how the law was drafted.
Discussions with more than a dozen senior Bangladesh Bank officials suggest that the process was largely driven by officials from the finance ministry and legislative and parliamentary affairs division.
While the central bank was assigned a formal role, officials say they had little opportunity to challenge the inclusion of the new provision.
A senior official, speaking on condition of anonymity, said the original draft of the bill did not include the controversial provision.
“It was added later,” the official said. “Only three members of the committee were from Bangladesh Bank, while the rest were from the relevant ministries. The central bank representatives did not get a proper opportunity to present their views.”
Sources say the ordinance had initially faced no objection from opposition parties when it was passed without amendment.
However, a 10-member committee was formed on 1 April to review and revise the draft, led by Additional Secretary of the Financial Institutions Division Md Azimuddin Biswas.
The committee included four officials from the Ministry of Finance, two from the Legislative and Parliamentary Affairs Division, and three from Bangladesh Bank.
The legal change comes at a time when the operations of a newly merged Islamic bank are already facing significant challenges.
Sammilito Islami Bank was formed by merging five struggling Shariah-based institutions, but progress has slowed since BNP formed the government after securing a decisive victory in the 12 February election.
The merger initiative, launched under the interim government, has since lost momentum.
Chairman Mohammad Ayub Mia resigned on 16 March, and although the government later appointed a new managing director, the appointee declined to take up the post.
A Bangladesh Bank official said the institution’s operations are now effectively stalled.
The scale of financial distress within the merged banks has added to concerns.
According to Bangladesh Bank data, non-performing loans account for 84.23 per cent of the combined Tk1,96,827 crore loan portfolio of the five banks.
At the same time, their combined capital shortfall stands at Tk1,50,691 crore, representing more than half of the total deficit in the banking sector.
To stabilise the system, the newly formed Sammilito Islami Bank was set up with a paid-up capital of Tk35,000 crore.
Of this, the government has contributed Tk20,000 crore, while Tk15,000 crore is to come from depositors in the form of shares.
Additional support has come from the Deposit Insurance Trust Fund, which provided Tk12,000 crore, and from Bangladesh Bank, which extended loans amounting to Tk36,000 crore.
Recent central bank data show that Tk8,000 crore of the deposit insurance funds has already been used to repay depositors.
Of the government’s Tk20,000 crore contribution, Tk10,000 crore has been invested in sukuk bonds, while around Tk100 crore from the remaining funds has already been spent on various operational needs.
Zabedul Alam Chowdhury, a former sponsor director of Social Islami Bank, said the institution had been taken over by the S Alam Group in 2017 under coercive circumstances.
“Using a state agency, the bank was taken from us at gunpoint,” he told TIMES. “After that, continuous looting destroyed the bank. The interim government merged it instead of returning it to us. Now, the law allows former directors to return. We feel both relieved and concerned.”
Documents seen by TIMES indicate that about 18 per cent of Social Islami Bank’s shares are held by the S Alam Group and its affiliated entities.
The group also faces allegations of siphoning off around Tk6,000 crore through loans taken under various names.
Zahid Hussain, former lead economist at the World Bank’s Dhaka office, said the inclusion of the new clause effectively creates a pathway for previous owners to return.
“This move risks undermining the survival of Sammilito Islami Bank,” he said.
He added that former owners could make the initial payment and then arrange the remaining funds from within the banking system itself.
“If that happens, the entire resolution process will lose its meaning,” he said.
Asked about the future of the bank, he said it now depends on who takes advantage of the new legal option and whether they seek to run the institutions as separate entities again.
“If they try to revert to the previous structure of individual banks, the merged entity will not survive,” he said.
Acting central bank spokesperson Mohammad Shahriar Siddiqui has rejected concerns that the new legal provision could pave the way for controversial business groups to regain control of troubled banks, saying the changes are intended to broaden resolution options.
He said the inclusion of Section 18A was designed to introduce additional mechanisms beyond existing tools.
“The earlier framework was limited to liquidation, bridge banks or transfer to third parties,” he told TIMES. “The new provision allows former investors without allegations against them, as well as new foreign investors, to re-enter. This approach is widely used globally.”
He said the move was also aimed at easing the government’s financial burden.
Significant public funds were used to stabilise the merged banks, including support from the Deposit Insurance Trust Fund, and authorities are now seeking greater private sector participation.
“We want to reduce the government’s liability and create an opportunity for it to recover its investment,” he said. “Another objective is to make the process more market-driven.”
Responding to concerns about whether groups such as S Alam and Nassa could return under the new provision, he said, “The government is committed to ensuring transparency, accountability and discipline in the financial sector. Only those former directors against whom there are no allegations will be eligible to return.”
Separately, Prime Minister’s Economic Adviser Rashed Al Mahmud Titumir said the government respects the independence of the regulator.
“The Bangladesh Bank governor can respond to the Bank Resolution Act, we are not in that position,” he told reporters.
