Bangladesh Bank is moving ahead with the formation of a new bank this week without resolving critical legal and procedural questions surrounding the merger of five Shariah-based lenders.
Central bank insiders informed TIMES that administrators will also be appointed to these banks once the new entity receives approval.
Legal experts say what the central bank is doing does not fit the definition of a merger.
“It is neither a merger nor liquidation,” several lawyers said.
Even senior Bangladesh Bank officials privately admitted that the ongoing process stands “somewhere between a merger and liquidation.”
According to sources at the central bank, Bangladesh Bank Governor Ahsan H Mansur held a meeting on Sunday with several top officials to finalise the plan.
It was decided that Bangladesh Bank would approve the new bank within days, complete with a full board. Afterward, the new bank will open an account with the central bank to receive the government’s promised funds and only then will administrators take charge of the five merging banks.
Under the interim government’s reform plan, the five banks – First Security Islami, Global Islami, Union, Social Islami and EXIM – will be combined into a new entity called Sammilito Islami Bank.
Bangladesh Bank Spokesperson Arief Hossain Khan said that while all preparations are complete, “there might be a slight delay in appointing administrators.”
Sources said the delay in appointing administrators stems from the fact that they are unwilling to assume charge before the government deposits funds as depositors may rush to withdraw their money once they take office.
News of their imminent appointment has triggered mixed reactions from depositors, with many fearing that without a clear roadmap for safeguarding their funds, panic withdrawals could worsen instability at the already distressed institutions.
Others are waiting for the administrators to step in, hoping they will finally recover their frozen deposits.
“Our only concern is our money’s safety,” said Md Jasim Uddin, a client of EXIM Bank. “We’ve heard it could take two to four years to get our money back after the merger.”
Ramzan Ali, another client of EXIM Bank, said he trusts the current branch officers more than any incoming administrators.
But another client, Nurul Islam of Social Islami Bank, said many customers are “eagerly waiting for administrators to end their ordeal.”
Economists have called the central bank’s plan “high-risk” and “unorthodox.” Former Director General of the Bangladesh Institute of Bank Management (BIBM) Professor Toufic Ahmad Chowdhury said this merger plan is highly unusual.
“Typically, a strong bank merges with a weak one. But merging five weak banks is unprecedented,” he added.
Chowdhury also said legitimate shareholders’ rights were being erased.
“Those who were not involved in the looting are being left with nothing,” he added.
As per the government’s decision, the new bridge bank will have no continuity of existing ownership, and its entire equity will belong to the state, which will inject Tk 20,200 crore as initial capital.
Asked why sponsor-directors and shareholders were being stripped of ownership, Bangladesh Bank’s spokesperson said the book value of these banks’ shares has long turned negative.
“Each share carries more liabilities than assets, so existing shareholders will not receive shares in the new bank,” he told TIMES.
Arief added that if the banks were instead liquidated, each shareholder would have to bear those liabilities.
However, legal experts rejected this reasoning. Supreme Court lawyer Md Mahmudul Hasan questioned if Bangladesh Bank can simply declare that the book value is negative.
“Only a court can determine that,” he said.
Another lawyer of the Supreme Court, Nurul Eman Babul, argued that the so-called merger has no legal basis.
“The Bank Resolution Ordinance doesn’t provide for mergers. The Company Act and Bank Company Act are interlinked; you can’t ignore them and act under a half-baked ordinance.”
Despite repeatedly referring to the move as a “merger,” Bangladesh Bank itself has admitted it does not meet that definition.
Mohammad Shahriar Siddique, assistant spokesperson of the central bank, said the move is something between a merger and liquidation.
“The government is essentially taking over the banks,” he said.
TIMES spoke to a retired Supreme Court justice for his understanding of the related law.
Speaking on condition of anonymity, he criticised the ordinance.
“Those who drafted the Bank Resolution Ordinance lacked necessary expertise. It contains nothing for the public good,” he said.
The justice informed that neither depositors, shareholders nor sponsors have any protection under this law.
“Bringing banks under such a chaotic and disgraceful law is a grave injustice and completely illegal,” he said.
He added that the ordinance gives absolute power to Bangladesh Bank, even to block court proceedings.
“Such authority is unconstitutional. This is a black law. The entire financial sector has become fearful as one word from governor’s lips can end a bank’s existence.”
The proposed Sammilito Islami Bank will inherit all non-performing loans and liabilities of the five institutions. However, months of uncertainty have already triggered withdrawals, worsening the liquidity stress.
