Bangladesh is presently passing one of the most critical banking sector restructuring initiatives in its history. The proposed consolidation of five troubled Islamic banks into Sammilita Islami Bank PLC was intended to restore depositor confidence, stabilise the financial system, and rebuild governance in the Islamic banking industry and the banking system as a whole.
However, after nearly nine months of declaration and restructuring initiatives, depositor confidence remains fragile, liquidity stress continues, and the newly proposed structure has yet to demonstrate sufficient operational capacity to fully address the payment obligations of depositors as well as the recovery of bad loans.
This raises an important policy question: whether Bangladesh should pursue a conventional merger and possible delisting strategy, or should it adopt a market-based recapitalisation framework that protects depositors, preserves employment, safeguards the capital market, and simultaneously reduces government fiscal pressure? A practical and economically sustainable alternative may exist through a Repeat Public Offer (RPO) based recapitalisation model.
Rather than delisting or liquidating the existing five listed Islamic banks, Bangladesh Bank may consider retaining them as separate listed entities under the ownership and strategic control of Sammilita Islami Bank PLC or a government-backed Islamic banking holding structure. Under this framework, the five banks would remain listed on the stock exchanges, operational restructuring would continue, professional management would be installed, and while new paid-up capital would be injected through Repeat Public Offers (RPOs) at prevailing market prices. This model would create a gradual and market-oriented restructuring process instead of a disruptive liquidation-style approach.
The most significant advantage of this proposal lies in its financing structure. Since all five banks are already publicly listed companies, fresh capital can be injected through RPO mechanisms without liquidating existing five banks. Sammilita Islami Bank PLC or a government-sponsored restructuring authority could subscribe to newly issued shares at market price and become the controlling shareholder.
This would achieve recapitalisation immediately while preserving the market identity of the banks. More importantly, because the banks would remain listed, the government or restructuring authority could gradually realise funds by selling portions of those shares in the secondary market over time after stabilisation improves. This creates an important fiscal advantage for Bangladesh.
Bangladesh is presently facing significant fiscal pressure. In recent months, government borrowing has increased substantially, and a significant amount has been taken from the banking sector. Excessive reliance on bank borrowing creates crowding out private sector credit, increasing inflationary pressure and long-term fiscal imbalance. If the recapitalisation of the five Islamic banks is conducted through a structured RPO framework, the government may eventually recover a significant portion of injected funds through future market divestment once the banks regain stability. In other words, the recapitalisation would become partially recoverable public investment rather than permanent fiscal expenditure. This could reduce future borrowing requirements and help ease pressure on Bangladesh’s widening budget deficit.
One major concern repeatedly raised by economists and regulators is that existing sponsor groups should not retain control over the restructured banks. If large quantities of new shares are issued at current market prices and subscribed by Sammilita Islami Bank PLC or a state-backed restructuring authority, the ownership percentage of existing sponsors would be diluted substantially, and the new governance reform can be achieved without destroying institutional continuity. As a result, previous controlling groups would lose effective control, new nominee directors could be appointed, and professional management could be installed under regulatory supervision.
Additional regulatory protection can also be considered. The shares held by previous sponsor directors accused of irregularities or connected lending could be frozen through CDBL mechanisms or placed under regulatory restriction or forfeited, subject to legal due process and court decisions.
Bangladesh’s capital market needs restoration of confidence, not further destruction of investor trust. A complete delisting or effective elimination of shareholder value may severely damage confidence in Bangladesh’s capital market to the local and foreign investor. Many shareholders purchased these bank shares from the secondary market and had no involvement in previous governance failures. Declaring the value of those shares effectively nil would punish ordinary investors and may discourage future participation in the capital market. Under the proposed RPO model, minority shareholders retain an opportunity for future recovery, market confidence remains relatively protected, and the restructuring process becomes more transparent and economically rational.
The five Islamic banks collectively employ thousands of staffs and maintain extensive branch networks throughout Bangladesh. Retaining the banks as operational entities under new governance would preserve institutional capacity while avoiding sudden economic and social disruption and help to avoid major unemployment. More importantly, existing employees can become valuable assets in recovering classified loans and restructuring problematic assets. Existing employees, under strict professional supervision and new governance structures, may play a critical role in loan recovery, restructuring negotiations, and asset tracing since they have borrower knowledge, branch-level relationships, operational continuity, and institutional memory.
Bangladesh now has an opportunity to develop its own model suited to local economic realities. Countries such as Malaysia, South Korea, and several European nations used recapitalisation and restructuring models rather than outright liquidation to stabilise banking crises. Eliminating weak institutions should not be the objective of banking reform.
The real objective should be to restore confidence, preserve financial stability, and protect the broader economy. An RPO-based recapitalisation framework for the five Islamic banks may provide Bangladesh with a more balanced solution by protecting depositors, reducing fiscal pressure, preserving employment, safeguarding minority investors, removing previous controlling interests, and strengthening long-term banking stability.
Rather than treating recapitalisation as a fiscal burden alone, Bangladesh can transform it into a recoverable strategic investment through the capital market. At this critical moment, policymakers should seriously evaluate whether a market-based restructuring model may achieve stronger and more sustainable outcomes than a purely merger and delisting approach.
The writer is a PhD, FCA, Capital Market Analyst, Fellow Member of ICAB. E-mail: [email protected]
