The government's decision to compensate small investors who purchased shares in the five distressed banks later merged into Sammilito Islami Bank is welcome. These private banks had been pushed to the brink of bankruptcy after years of systematic plundering of the bank loans during the Awami League regime. In late November last year, the interim government merged the banks by injecting about Tk 200 billion in capital to form an Islamic Bank, the largest of its kind in the country. The merger paved the way for the depositors to withdraw their savings. However, small investors who had purchased shares in these banks from the stock market were left in the lurch after the previous administration of Bangladesh Bank reportedly declared the share prices of the merged banks to be zero. Subsequently, the stock market regulator suspended trading of their shares on the bourses.
However, the sudden conversion of the five banks' reportedly positive asset values into negative net worth during the merger has raised serious concerns. The Bangladesh Bank disclosed a negative Net Asset Value of the banks just a day before trading in their shares was suspended on the stock market. Prior to that, the banks' financial statements had shown positive asset positions, which were formally submitted to the stock exchanges. Small investors had every reason to rely on these officially approved disclosures, since listed companies are required to report according to strict standards and their submissions are supposed to be vetted by the securities regulator. The abrupt assertion that the real net asset positions were not only weak but entirely eroded means that shareholders were trading in an environment where critical information was withheld.
The merger of troubled banks may well have been unavoidable. Years of excessive lending to connected parties, outright plunder through fraudulent transactions and poor recovery performance had hollowed out loan portfolios, with three banks carrying doubtful loan ratios above 90 per cent. The Bank Resolution Ordinance provides a necessary legal framework for such severe distress, and its primary goals of protecting depositors and safeguarding financial stability are entirely reasonable. However, it should not be done overlooking the rights of shareholders who invested legally and in good faith. Majority of these investors are not insiders or controlling families. They are ordinary citizens who saved from salaries or business income and invested through an exchange regulated by the state. Therefore, to have their investments nullified based on a sudden, contradictory disclosure is to penalise the victims rather than the perpetrators.
The government's decision to compensate small investors is therefore a welcome step towards ensuring justice for affected shareholders and restoring confidence in the integrity of the market. However, a critical question remains whether investors will be compensated based on the last trading price of the shares or their face value. The banks have already been rescued with taxpayers' money and the compensation money will also come from public funds. So, the process must be carried out with utmost fairness and transparency backed up by clear valuation principles. At the same time, holding loan defaulters and their enablers accountable is crucial not only to upholding justice but also to preventing a repetition of such systemic failures in the future.
