The interim government is poised to take decisive action on struggling banks with a proposed ordinance aimed at transferring ownership of crisis-hit financial institutions to third parties. The draft 'Bank Resolution Ordinance 2025' seeks to streamline the management, sale, or liquidation of weak banks, many of which are grappling with severe financial instability.
The proposed law, which would be enacted in the absence of parliament, outlines a framework for the formation of a "bridge bank" under the authority of Bangladesh Bank. In the event that the bridge bank fails to stabilize the troubled institutions, it would have the authority to sell, transfer, or liquidate the distressed banks.
Not only that, Bangladesh Bank can bring a scheduled bank under the (temporary) government ownership if it wants. It can also transfer one or more shares of the bank to a person nominated by the government or a company fully owned by the government.
The government intends to address the lingering crisis at a number of banks, particularly those controlled by the S Alam Group. While six of the eleven weak banks have shown signs of recovery, at least five remain on the brink of collapse.
Four of these institutions—Bangladesh Commerce Bank, First Security Islami Bank, Global Islami Bank, and Union Bank—are considered the most troubled, with mounting concerns over their ability to repay deposits or conduct lending activities.
Far from conducting lending activities, these banks are not even able to repay customer deposits. Most of the loans of these banks have been given for group interests, which are no longer possible to recover. Although these banks apply for liquidity support every day to deal with the crisis, Bangladesh Bank is not providing them with new financial assistance. As a result, customers are still facing problems in withdrawing their deposits.
Bangladesh Bank Governor Ahsan H Mansur acknowledged the severity of the crisis, noting that while efforts to restore good governance in the sector are ongoing, certain banks are beyond saving due to non-repayable loans concentrated within a single family.
Ministry sources said that according to the existing law, Bangladesh Bank does not have the power to take strict steps in the liquidation or transfer of any bank in crisis. But if the 'Bank Resolution Ordinance 2025' is issued, the central bank will have extensive powers to sell or transfer weak banks. If the proposed ordinance comes into effect, Bangladesh Bank will be able to temporarily suspend the activities of a bank in crisis. It can cancel the license of the bank and hand over the responsibility to the bridge bank. If necessary, it can transfer the bank's shares, assets and liabilities to a third party. It can take strict action if it finds evidence of irregularities by the bank's owners. It can even order capital increase through new shareholders.
Bridge Bank to be formed under the Central Bank: The proposed ordinance states that Bangladesh Bank can establish one or more 'bridge banks' to properly manage the important activities of banks in crisis and gradually sell them to third parties.
These bridge banks will ensure necessary banking services while dealing with the financial instability of failed institutions. In addition, they will be able to raise funds through new or existing directors of the bank to strengthen the financial condition of weak banks. The Central Bank will issue a banking license to this bridge bank subject to necessary conditions.
After the bridge bank starts its operations, the license of the scheduled bank in crisis will be cancelled and the remaining assets and liabilities will be liquidated. The activities of the bridge bank will be conducted through members determined by Bangladesh Bank. The Central Bank will appoint members of the board of directors and senior officers.
The bridge bank will take responsibility for the secured deposits of the scheduled bank under the resolution; however, the liabilities of the bank-related individuals and institutions cannot be transferred to the bridge bank. The term of the bridge bank shall be for two years from the last date of transfer of assets and liabilities of the scheduled bank; the Central Bank may extend its term if it so wishes; however, the term of a bridge bank shall not exceed five years.
If the bridge bank fails to discharge its responsibilities properly within the stipulated time, the Central Bank may merge the bridge bank with another entity and sell the assets, rights and liabilities of the bridge bank in whole or in part to a third party.
(Translated by Tanvir Raihan)
