The government is moving to fast-track two of the most consequential financial reforms in decades – the amendment of the Bangladesh Bank Order and a merger of five crisis-hit banks – at this week’s advisory council meeting, primarily scheduled for Thursday.
Bangladesh Bank Governor Ahsan H Mansur has already received the green signal from Chief Adviser Professor Muhammad Yunus to table both measures, senior officials from the central bank and finance ministry told TIMES.
The urgency reflects Dhaka’s need to reassure the International Monetary Fund (IMF) ahead of its annual meetings in Washington on October 13-18. Bangladesh is expected to face tough questions on its compliance with conditions tied to the $5.5 billion loan programme.
Among the IMF’s key demands: full central bank autonomy and a reduction in the number of financial institutions. The global lender has explicitly backed the merger initiative.
Former World Bank lead economist Zahid Hussain warned that any delay could derail IMF support.
“If Bangladesh Bank’s autonomy is not ensured through an ordinance by December, the next IMF tranche could hang in the balance,” he said.
“Unless the merger is complete by December, it could stall altogether. A new political government after the February election may not show the same commitment,” Hussain added.
Bangladesh must meet six Quantitative Performance Criteria (QPCs) to unlock the December disbursement, three of which were added in May. Officials admit revenue mobilisation remains off target but claim progress elsewhere has kept the programme on track, which include ensuring sufficient forex and reducing arrears in the energy and fertiliser sectors.
If achieved, Bangladesh expects $450 million in December under the sixth instalment.
The IMF originally approved a $4.7 billion package in January 2023. In June this year, it cleared the fourth and fifth instalments, granted a six-month extension and added an $800 million top-up, expanding the programme to $5.5 billion.
So far, Dhaka has received $3.6 billion. An IMF mission is due in Dhaka on October 29 for a two-week progress review up to June.
A senior finance ministry official, requesting anonymity, stressed that the government wants to present “tangible progress” on autonomy and mergers before the IMF team arrives.
“If a tranche is delayed, securing funds from other development partners will also become harder. The government does not want to take that risk now.”
Nazma Mobarek, secretary of the Financial Institutions Division, said the government is fully committed to ensuring central bank autonomy under the upcoming amendment.
Overhaul of Bangladesh Bank Order
After fierce debate, Bangladesh Bank’s board approved the draft amendment to the Bangladesh Bank Order on September 16.
Enacted in 1972, the Bangladesh Bank Order established the central bank’s powers and governance. The proposed amendment represents the most sweeping overhaul since independence, designed to strip away bureaucratic dominance and give the central bank full control over regulation.
The draft restructures the nine-member board, cutting bureaucrats from three to one and adding six private-sector experts in banking, economics, law and industry. The governor would serve as chair, alongside one deputy governor.
Appointments would move to the president, based on a search committee led by the finance and commerce ministers and a current or former central bank governor.
Dismissals would shift from the finance ministry to a three-judge Supreme Court panel, while governors and deputies would enjoy a guaranteed four-year term.
Other provisions empower Bangladesh Bank to set its own pay scales, blacklist auditors, rating agencies and valuation firms tied to financial fraud, and protect whistleblowers. Drafted with IMF and legal input, the reforms are aimed at restoring credibility in a sector plagued by mismanagement and systemic abuse.
Merger blueprint and hurdles
On the same day, September 16, Bangladesh Bank’s board approved the merger plan for five Shariah-based banks. All assets and liabilities would be absorbed into a new state-owned Islamic bank.
The government would inject Tk 20.2 thousand crore in equity, with another Tk 10 thousand crore drawn from the Deposit Insurance Fund if required. An additional Tk 5 thousand crore is being sought from international lenders.
For depositors, the merger guarantees full protection, with all deposits transferred seamlessly to the new entity. In case of liquidity stress, the Deposit Insurance Fund will serve as backup.
For shareholders, new equity will be issued proportional to their existing stakes. But regulators have signalled that investors linked to fraud or wilful default will be excluded.
Industry insiders caution that merging the five banks’ disparate systems – technology, HR, policies and asset valuations – will be a massive challenge.
Moreover, two crucial laws, the Deposit Protection Act and Distressed Asset Management Act (DAMA), must be enacted to complete the process.
Without those, the merger cannot be finalised before the election. And with political uncertainty looming in February, powerful vested interests could still attempt to block or reverse the plan.
