The recent collapse of five banks in Bangladesh has highlighted the profound challenges facing the country’s financial system. With the government responding by merging these entities and injecting Tk20,000 crore of taxpayer money, concerns about systemic corruption and regulatory failures have prompted widespread scrutiny about the future of banking in the nation.
At the core of this crisis is the Bangladesh Bank, the country’s central bank, which has come under fire for its failure to oversee the banking sector adequately. For years, under the prior government, the bank allegedly overlooked irregularities that allowed powerful groups, including the S Alam Group, to gain control over multiple banks without sufficient oversight. Mismanagement, corruption, and fraudulent activities ran rampant without any substantial intervention from regulatory authorities.
A closer look at the events reveals a troubling trend—a history of regulatory negligence. In 2016, the swift acquisition of a significant stake in Islami Bank by a relatively unknown firm, Armada Spinning Mills, went unchallenged by the regulatory bodies, raising questions about transparency and accountability. This pattern continued into recent years, with insiders aware of dubious activities yet remaining silent as the banking system faced increasing instability.
Fahmida Khatun, an executive director at the Centre for Policy Dialogue (CPD), underscored the need for rigorous accountability in the wake of these mergers. She warned that unless systemic issues within the regulatory framework are addressed, the cycle of bailouts and corruption will perpetuate. “Dissolving these banks is only the first step. To make the merger effective, the new entity must strictly follow all rules and regulations,” Khatun stressed. Her sentiments are echoed by numerous experts who recognize that effective governance and compliance are critical for preventing future crises.
The financial condition of these banks paints a grim picture. With non-performing loans (NPLs) reaching alarming rates—some banks reporting as high as 98.5%—these institutions are in dire need of reformation. The involvement of politically connected business groups has further exacerbated the situation, with reports detailing extensive money laundering and improper loan practices adding to the sector’s turmoil.
Specifically, four of the failed banks—First Security Islami Bank, Union Bank, Global Islami Bank, and Social Islami Bank—are tied to S Alam Group, while the fifth, Exim Bank, is connected to a now-incarcerated corporate leader. This intertwining of business and politics has led to widespread distrust among the public and investors alike, contributing to a dramatic decrease in deposits and a significant drop in share prices.
The Bangladesh Bank’s recent actions—including the dissolution of the boards of the failing banks and the appointment of new administrators ahead of the merger—signal a shift towards more direct intervention in the banking sector. However, immediate reforms will be essential to address capital shortfalls and provisioning deficits that hinder recovery efforts.
As the government seeks to consolidate these banks into a new entity that could potentially hold assets worth Tk2.20 lakh crore, sustained monitoring and regulation will be crucial. The Bangladesh Bank’s commitment to oversight in the aftermath of the national elections will determine whether this merger can restore confidence in the banking sector or merely serve as another chapter in a long history of financial instability.
