WB tags revoking of the Bank Resolution Act amendments

Returning the five merged Islamic banks to their former shareholders might prove difficult for the government as major development partners dislike the reversion move, officials says.

 The new government last month passed the Bank Resolution Act 2026 amending the Bank Resolution Ordinance 2025 under which the post-uprising interim government had taken step for merging five troubled shariah-based banks.

 However, while passing the act in parliament, the Ministry of Finance interpolated a provision which paved the way for the former owners to regain control of the five banks by paying the money injected by the government on very easy terms.

The government action drew strong criticism from cross section of people, including economists and academia.

 The revised act allows the former shareholders to initially pay only 7.5 per cent of the government-injected funds for the takeover. The rest 92.5 per cent has to be paid over the next two years where 10-percent simple interest will be added.

Finance Ministry officials say the interim government had proclaimed the Bank Resolution Ordinance 2025 under prescription of development partners like the International Monetary Fund (IMF) and the World Bank as part of financial-sector reforms.

Especially, the IMF played a significant role in preparation of the ordinance to give the trouble banks a lifeline.

The new government's move to give back the troubled banks to the former owners, who allegedly looted billions from the banks, has seriously irked the IMF and the World Bank, according to officials.

They say one of the reasons for the IMF move to delay the releases of two tranches under a US$5.5-billion credit package, amounting to $1.3 billion, is the government steps to return the banks to the former owners.

According to a finance official, the government recently sought some $500 million as a budget- support credit from the World Bank to fund the financial deficit created due to buying fuel oils and gas at higher prices amid prolonged crises in the Middle East.

In response, the World Bank put forward a number of conditions for the deficit bankrolling, including repealing the Section 18(A) of the Bank Resolution Act 2026 which provides for the former ownership restoration.

A senior finance division official told The Financial Express the development partners  are not happy with the new government's attitude towards financial-sector reforms.

 "Especially, the amendment of Bank Resolution Ordinance 2025 has angered the IMF and the World Bank," he says.

 "Thus, the major development partners' response in providing budget-support credits even at this crisis moment is very unfriendly," the official adds.

He says the World Bank in its response also has asked for faster process for bifurcation of the National Board of Revenue, enhancing revenue collection, introducing single rate in value-added tax, and lowering corporate tax, among others.

Another senior finance official says they have discussed the World Bank's conditions against the budget credit as logical but will soon place the matter to the finance minister for a decision.

 "We are in severe need of budget-support credits. In exchange for the supports, the development partners want our serious commitment in conducting reforms,' he notes.

After the government had passed the Bank Resolution Act 2026 by incorporating the Section 18(A), the Transparency International Bangladesh (TIB) said by including the provision the government took an initiative to rehabilitate "identified looters".

 "As a result, the banking sector is likely to once again turn into a haven for corruption and plunder, which would be self-defeating," it said in a statement.

The TIB further said instead of addressing the longstanding mismanagement, irregularities, and governance deficits in the banking sector, this move perpetuates the previous authoritarian culture of impunity and lack of accountability.

syful-islam@outlook.com