The Bangladesh Bank has finally approved the creation of Sammilito Islami Bank by merging five distressed Sharia-based banks, prompting mixed reactions over a move many view as the start of banking sector reform.
The banks are First Security Islami Bank, Global Islami Bank, Union Bank, Exim Bank and Social Islami Bank.
Former secretary Mohammad Ayub Miah, who also served as a director of Ibn Sina Pharmaceuticals Ltd, has been appointed as the chairman of the newly formed bank. Of the seven directors on the new board, five are serving government officials.
The approval came at a special board meeting on Sunday chaired by Governor Ahsan H Mansur, clearing the way for a new state-owned Shariah-based bank.
Zahid Hussain, former lead economist of the World Bank’s Dhaka Office, said that as part of banking-sector reforms, Bangladesh Bank’s initiative to merge the five troubled banks has now taken formal shape with the approval of the new institution.
“We had been saying from the very beginning that Bangladesh Bank should complete the consolidation of these banks before the upcoming national election,” he said. “This step makes us hopeful that the central bank will be able to complete the merger process on time.”
Former director general of the Bangladesh Institute of Bank Management, Toufic Ahmad Choudhury, raised concerns about the composition of the board, saying, “The way government officials have been placed on the board does not give the impression that this bank will perform well.”
“We said from the very beginning that the board should be formed with people from the private sector,” he added.
However, questions have emerged over whether the regulator bypassed its own procedures in forming the bank.
Although the central bank framed the merger as an urgent step to stabilise the financial sector, a TIMES of Bangladesh review of documents, timelines and internal actions shows that the new bank had effectively begun operating several days before it received formal approval.
The concerns deepen when the timeline is pieced together. Although the Bangladesh Bank said the new institution was authorised to begin operations from 30 November, senior officials confirm that its settlement account at the central bank was opened on 27 November – three days earlier.
By then, the government’s injected capital had already been deposited, meaning operational activities had quietly begun before the bank legally existed. The central bank’s own press release further stated that the Tk20,000 crore paid-up capital of the newly formed bank had “already been brought under” the new entity by the government.
Under the Bangladesh Bank’s established framework, a new bank must progress through several stages – in-principle approval, preparatory work, a pre-licence inspection, issuance of the Form-VI licence, and only then the opening of a settlement account, followed by the formal commencement of operations.
In the case of Sammilito Islami Bank, the sequence appears to have been reversed. No pre-licence inspection was carried out, and the settlement account was opened prematurely. These departures from procedure suggest that the bank effectively began functioning before completing any of the required licensing steps.
This timeline clash raises a legal comparison: Section 31 of the Bank Company Act prohibits any entity from conducting banking activity without a valid licence, yet the new bank opened a settlement account and received deposits to continue core banking operations.
As these occurred before approval, the actions stood at odds with the laws meant to govern them. Similarly, the Bangladesh Bank Order 1972 requires the regulator to remain structurally neutral, but in this case the central bank moved beyond supervision and into the domain of institution-building.
Internal drafts reviewed by TIMES of Bangladesh show that the government initially included two of its own directors on the proposed board of the new bank. Although these names were later withdrawn following conflict-of-interest concerns, the initial selection illustrates how far the regulator inserted itself into the governance structure it is supposed to oversee.
TIMES of Bangladesh attempted to contact Mohammad Shahriar Siddique, acting spokesperson of the Bangladesh Bank, but received no response.
