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Administrative teams will be deployed in five troubled Shariah-based banks for their merger into a single state-owned bank under an overhaul recipe, in a much-anticipated intervention in Bangladesh's banking sector.
The Bangladesh Bank board, in a special meeting Tuesday with Governor Dr Ahsan H. Mansur in the chair, made the crucial decision as the banks' bail-in plans failed to stand.
"There will be administrative teams to be installed to oversee the five banks. The CEOs of the respective banks will remain in their positions," said Arif Hossain Khan, the central bank's spokesperson and executive director, about the makeover.
He further said the boards of directors of the banks will technically remain in place but their functions will remain suspended.
According to the plan, First Security Islami Bank, Social Islami Bank, Global Islami Bank, Union Bank and Exim Bank will be consolidated into a new entity tentatively named United Islami Bank.
The government has pledged over Tk 200 billion in fresh capital to support the mergers, while Bangladesh Bank estimates the total requirement at Tk 352 billion. The remaining portion might be mobilisded from Bangladesh's development partners.
Officials say each of the banks being disbanded will have an administrator, assisted by four other Bangladesh Bank executives, to assume control this week.
Once the administrators are in place, the existing boards will become inactive. The teams will report to a central supervisory unit within the central bank.
"The move is aimed at restoring public confidence after years of alleged irregularities and corruption in Islamic banking," says one BB official.
According to central-bank figures, between 48 per cent and 98 per cent of the loans disbursed from the five lenders are now classified as defaulted.
The troubled banks had earlier submitted their own restructuring proposals, but these were rejected by the regulator as untenable.
The governor has indicated that it could take at least two years to complete the merger process.
Four of the lenders - First Security, Union, Global and Social Islami Bank - have long been associated with the acquisitive S Alam Group, while Exim Bank has been linked to clothing-giant NASA Group chairman Nazrul Islam Majumdar.
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