Reprivatisation or recapitalisation: BB weighs on options for five merged banks

The Bangladesh Bank is deliberating whether to reprivatise five Islamic banks – First Security Islami Bank, Global Islami Bank, Union Bank, EXIM Bank and Social Islami Bank – merged during the interim government, or to recapitalise the merged entity using taxpayers' money.

Highlights: TBS

Governor Md Mostaqur Rahman said a decision will be made after stakeholder consultations. He made the remarks yesterday (25 April) at a pre-budget discussion organised by the finance ministry with the Economic Reporters Forum (ERF), attended by Finance Minister Amir Khosru Mahmud Chowdhury.

"After the Bank Resolution Bill is passed, we can look at these five banks both positively and negatively," the governor said. "Either depositors' dues of Tk1,30,000 crore must be repaid using taxpayer funds, which could take several years, or Sammilito Islami Bank could be recapitalised after a certain period."

He noted that recapitalisation would require significant time and resources, raising concerns about fiscal capacity. "We will consult stakeholders on whether to attempt reprivatisation now or move towards recapitalisation," he added.

Under amendments to the bank resolution ordinance introduced by the interim government, previous owners have been allowed to regain ownership, creating scope for reprivatisation despite the banks being merged into a state-run entity.

Highlighting challenges in the merger, the governor said the government initially provided Tk47,000 crore in liquidity support, followed by Tk20,000 crore in paid-up capital and Tk12,000 crore from the deposit protection fund. Of this Tk32,000 crore, Tk3,000 crore has already been injected into the banks.

The five banks hold deposits of Tk1,30,000 crore, but performing loans amount to only Tk32,000 crore, while non-performing loans stand at Tk1,64,000 crore.

"In other countries, such distressed banks are handled by asset management companies," he said. "Unfortunately, many of these non-performing loans lack proper collateral – whether they can even be called loans is questionable. Much of this money has effectively been siphoned off."

Bangladesh Bank data shows that government borrowing through ways and means advances and overdrafts fell from Tk17,590 crore on 17 February to Tk11,103 crore by 22 April.

Responding to reports that the government borrowed Tk20,000 crore from the central bank in March, the governor dismissed the claim as inaccurate, noting that rising borrowing costs and a lower country rating have already increased financing pressure.

Deputy Governor Habibur Rahman added that the Bangladesh Bank has not purchased any treasury bills or bonds from the government in the past two years. He clarified that changes in borrowing reflect routine fiscal operations rather than money printing, emphasising that the key issue is whether currency in circulation is increasing.