The Bangladesh Association of Banks (BAB) has called for a reconsideration of certain provisions in the recently enacted Bank Resolution Act, saying that allowing former owners to regain control of troubled lenders through a limited upfront payment could raise concerns over accountability, governance and moral hazard.
The plea was made during a meeting between a BAB delegation led by Chairman Abdul Hai Sarker and Bangladesh Bank Governor Md Mostaqur Rahman at the central bank headquarters in Dhaka yesterday.
The association, which represents bank sponsors and owners, shared this view as the Bank Resolution Act was passed in the House last month. The revised law included provisions allowing former owners to reclaim merged banks under relatively easy terms.
According to the law, former directors or owners of banks under merger or listed for merger can pay 7.5 percent upfront of the amount injected by the government or the BB to regain control. The remaining 92.5 percent is to be repaid within two years at 10 percent simple interest.
While welcoming the government’s initiative to establish a structured resolution framework, BAB said the mechanism should ensure a strong “fit and proper” assessment, forensic audits, verification of fund sources and transparent regulatory oversight.
As part of its banking reform initiatives, the interim government approved the Bank Resolution Ordinance 2025. Under it, five crisis-hit lenders -- First Security Islami Bank, Global Islami Bank, Union Bank, Social Islami Bank and EXIM Bank -- were brought under the merger process.
The BB later issued a licence for a new state-owned entity, Sammilito Islami Bank PLC, in November last year, which is expected to become the country’s largest state-owned shariah-based lender.
Image
A delegation of Bangladesh Association of Banks (BAB), led by its Chairman Abdul Hai Sarker, meets Bangladesh Bank Governor Md Mostaqur Rahman at the central bank headquarters in Dhaka yesterday. Photo: courtesy
After the Bangladesh Nationalist Party (BNP) came to power following the national election in February, the ordinance was amended and enacted as the Bank Resolution Act 2026.
Subsequently, five sponsor shareholders and former directors of troubled Social Islami Bank PLC applied to regain control of the shariah-based lender. However, senior BB officials told The Daily Star last week that the request was likely to be rejected as the merger process moves ahead.
Against this backdrop, BAB said international investors, development partners and global financial institutions closely monitor the credibility of financial sector resolution frameworks.
“Any perception of weak accountability may negatively affect investor confidence, depositor sentiment, and international financial perception regarding Bangladesh,” the association said.
It added that depositor protection, governance reform, financial discipline, transparency and long-term institutional stability should be prioritised in any resolution process.
BAB also urged the BB to consult it before finalising proposed amendments to the Bank Company Act, saying the changes could have a significant impact on board governance, capital raising, sponsor shareholding structures, independent director frameworks and management accountability.
The association said the banking sector is going through one of its most difficult periods.
“Elevated non-performing loans, provisioning and capital adequacy pressures, weak private sector credit growth, legal recovery bottlenecks, rising cost of funds, declining investor confidence, and global economic uncertainties continue to place significant stress on the sector.”
It added that the sector is suffering from broader confidence challenges.
“Public confidence, depositor trust, investor confidence, and international perception regarding governance, transparency, and institutional accountability within the banking sector are now critical issues requiring coordinated and balanced action.”
BAB urged the central bank to retain existing incentive bonuses for bankers in order to help banks retain skilled professionals. It also called for access to the BB’s refinance schemes for banks with non-performing loan ratios below 20 percent.
The association further pressed for changes in rules on income recognition, classification and provisioning, arguing that current requirements place undue pressure on capital buffers and restrict credit flow. It suggested allowing interest income recognition after the expiry of grace periods.
On rescheduled loans, BAB said existing classification and provisioning rules significantly increase risk-weighted assets and capital adequacy pressures, limiting banks’ ability to extend fresh lending to productive sectors.
It also proposed the creation of a professionally managed national Asset Management Company (AMC) to acquire classified loans, support restructuring and assist sector recovery, citing examples from Malaysia, South Korea and Indonesia.
On legal recovery challenges, BAB said the process for recovering defaulted loans remains slow and complex owing to case backlogs, delayed hearings, misuse of stay orders and weak enforcement of judgments.
To overcome this, BAB proposed amendments to the Artha Rin Adalat Ain to include ultimate beneficiaries and beneficial owners, the introduction of fast-track financial courts and dedicated recovery benches, along with mandatory hearings before stay orders are issued and time-bound limits on such orders.
“A major challenge currently faced by banks relates to accounts where courts direct loans to remain unclassified while regulatory inspections require provisioning treatment as ‘bad and loss’,” it said.
BAB said this creates inconsistencies in provisioning, affects profitability, increases capital stress and reduces lending capacity. It called for separate regulatory treatment for loans under litigation or stay orders, along with a phased provisioning framework.
“Such an approach will improve regulatory consistency while maintaining prudential discipline,” said the association.
