Strong stance advocated by BTMA President: Prioritizing bank closures over mergers for underperforming institutions.
Bank Consolidation Discussions in Bangladesh: Addressing Financial Instability and Sector Fragmentation
In recent discussions held at the Lakeshaw Hotel in the capital, key figures in the banking and business sectors expressed concern and proposed solutions regarding the potential consolidation or mergers of banks in Bangladesh. The primary focus of these discussions stemmed from the financial weakness, poor governance, and irregularities, particularly in Islamic banks.
Former Finance Secretary Mohammad Muslim Chowdhury expressed apprehension about potential problems if the government invests in bank mergers, especially if the funds come from Bangladesh Bank injecting funds. His concern revolves around the potential impact on the financial sector and the need for careful consideration to protect depositors' interests.
Bankers, businessmen, and former bureaucrats stressed the need for clarity from Bangladesh Bank regarding bank consolidation or mergers. Shawkat Aziz Russell, president of the Bangladesh Textile Mills Association (BTMA), suggested closing weak banks rather than merging them, proposing instead to give a few branches of weak banks to healthy banks to preserve employment.
The Bangladesh Bank (BB) has enacted the Bank Resolution Ordinance 2025, which empowers it to merge troubled banks and temporarily transfer ownership to the government for stabilization. This move aims to address the financial instability, governance issues, and irregularities in the banking sector, particularly in Islamic banks.
The mergers aim to create larger, stronger banks operating under clearer regulations. However, concerns include potential job losses, disruptions in services during the merger process, and the challenge of managing a smooth transition while maintaining depositor confidence and financial system stability.
The long-term goal is to form fewer but larger and more stable banks, such as merging all 10 Islamic banks into two large institutions, to ensure better governance, financial health, and a unified regulatory regime. BB officials have reassured depositors that funds are safe and there is no cause for panic, emphasizing the role of consolidation in protecting depositors’ interests.
Other issues discussed during the dialogue included gas shortages in rural areas, the disconnect between the education system and industry, and the economic security and safety of journalists. Mahmuduzzaman Khan Babu, President of the BGMEA, expressed concern about the inability to open Letters of Credit (LCs) in certain banks due to merger plans.
In summary, the merger discussions reflect efforts by Bangladesh Bank to address financial weaknesses, governance failures, and sector fragmentation by consolidating troubled banks, especially Islamic ones, into stronger entities under a better regulatory framework, while cautiously managing risks to depositors and the broader financial system.
- The discussions on bank consolidation in Bangladesh involve concerns from industry leaders about the potential impact on the business sector, particularly the banking-and-insurance industry, due to the proposed mergers or consolidation of banks.
- The long-term goal of these bank mergers is to foster a finite number of larger, financially healthier, and better-governed institutions across the banking-and-finance industry, including the Islamic banking sector.
