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Bangladesh's Islamic-banking sector will be restructured with planned merger of the weakened and struggling ones of the lenders into two large banks to restore stability.
Bangladesh Bank Governor Dr Ahsan H Mansur Wednesday announced the plan, now that there have been wide-ranging reforms launched in the country by the post-uprising interim government, including in financial sector.
"Most Islamic banks are in trouble. We plan to restructure the sector and consolidate it into two large banks," he said while inaugurating the 10th Annual Banking Conference 2025, hosted by Bangladesh Institute of Bank Management (BIBM).
He notes that there is currently one large Islamic bank and several smaller ones -- many in distress. And weaker banks would likely be merged with the stronger ones.
Mansur acknowledges the absence of a dedicated legal framework for Islamic banking, saying, "There is a regulatory gap, and we are working to address it, aligning with international standards."
Issuing a strongly worded warning to money-launderers, the Governor said the central bank is spearheading a multi-agency initiative to recover funds siphoned off abroad -- especially during the previous government's tenure --through the banking channel.
"Both legal and ethical measures are required. Life will be made difficult for those who laundered money, so that nobody follows suit in the future," he said.
"Even if we fail to recover all the laundered money, we will ensure those responsible face immense difficulties."
He stresses that the central bank is firmly committed to tackling illicit financial flows and calls for cooperation from all stakeholders.
Highlighting regulatory reforms, Mansur said Bangladesh Bank had recently dissolved boards of several underperforming banks to protect depositors' interests.
"If a bank's board fails to function within the regulatory framework, we will intervene -- forcefully, if needed. The message is loud and clear."
He notes that amendments to the Bank Company Act 2023 aim to improve governance, ensure proper board formation, and enforce stricter 'fit and proper' criteria for directors.
The Governor also calls for further amendments to the Bangladesh Bank Order to enhance the institution's autonomy and establish a unified regulatory framework for both public and private banks.
He feels that despite political changes, reforms must continue, and central bank autonomy must be preserved.
On digital banking, Mansur said licensing terms are being revised to promote small and nano-loans, aligning with broader financial-inclusion goals.
He mentions rapid expansion of mobile-financial services, with Nagad hitting a record transaction volume last month and average daily MFS transactions reaching Tk 5,000 crore.
He told the meet of bankers that capital-deficient banks would be gradually brought from negative to positive capital levels, potentially aided by political stability.
In the keynote presentation, Grameen Bank Chairman and North-South University Vice-chancellor Prof Abdul Hannan Chowdhury urged structural reforms and ethical leadership to rebuild public confidence in the banking sector.
He has identified persistent challenges -- such as weak oversight, rising non-performing loans (NPLs), and liquidity stress -- and advocated for aggressive technological adoption and institutional reform.
Citing successful blockchain pilot projects by Standard Chartered, HSBC, Prime Bank, and bKash in LC settlements, Prof Hannan said the technology can help curb trade-based money laundering which accounts for 75 per cent of illicit financial outflows.
He recommends using AI for CMSME credit scoring, adopting Robotic Process Automation (RPA) for compliance, and developing crowd-funding regulations for startups.
To address governance issues, he proposes a Bangladesh Bank-managed pool of independent directors and institutionalized performance-based board evaluations.
He also called for constitutional safeguards to ensure central bank independence, real-time IT-based supervision tools, and better coordination between fiscal and monetary policies.
To recover bad loans, he suggests establishing a special tribunal and an asset- management company, along with independent international audits to verify financial disclosures and detect "window-dressing".
Bangladesh Association of Banks (BAB) Chairman Abdul Hai Sarker stressed that customer trust is central to the sector's turnaround. "The real owners of banks are the customers. Without their confidence, the sector cannot recover."
He appreciated the conference as a platform for sharing reform strategies and governance improvements by regulators and industry leaders.
BIBM Director-General Md Akhtaruzzaman highlighted the need for inclusive digital transformation. "While the sector has seen major transformation over the past decade, digitalization must ensure no one is left behind -- financial inclusion remains our top priority," he said.
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