The central bank finalized, in September, the decision to merge five financially distressed Shariah-based banks to form a new combined bank. The proposal was approved by the Advisory Council on October 9. Following the decision, the Ministry of Finance and Bangladesh Bank have begun the formal process of establishing the new entity under the name “Sammilito Islami Bank PLC.” The draft memorandum and articles of association have already been sent to the Ministry of Law for vetting, while initiatives have been taken to obtain a banking license and register the institution as a company. According to officials from the finance ministry and the central bank, the government aims to make the new bank operational by December 2025.

The five banks to be merged — EXIM Bank, First Security Islami Bank, Global Islami Bank, Social Islami Bank, and Union Bank — currently employ more than 18,000 people. Their combined annual expenditure on salaries and allowances is about BDT 20 billion, in addition to significant operating costs. Officials familiar with the matter expressed concern over whether the new institution can remain sustainable under such a large workforce.

Employees of these banks currently work under private ownership. But following the merger, they will become part of a state-owned entity. It has yet to be decided whether their status and benefits will match those of other government bank employees. According to the government’s plan, the merged bank is expected to be privatized within five years. This has raised uncertainty over what will happen to the employees’ status once the bank transitions to the private sector if they are granted government employee status in the meantime. Sources said these issues will be reviewed and resolved after the merger process is completed.

According to the 2024 financial reports of the five banks, their total workforce stood at 18,081. Of them, EXIM Bank employed 3,487 people, First Security Islami Bank 5,996, Social Islami Bank 4,039, Global Islami Bank 2,486, and Union Bank 2,073.

The five banks together spend around BDT 19.77 billion a year on salaries and allowances for their employees. Of that, EXIM Bank spent BDT 3.9 billion in 2024, while First Security Islami Bank spent BDT 6.52 billion. Global Islami Bank spent BDT 2.05 billion, Social Islami Bank BDT 5.3 billion, and Union Bank BDT 2 billion. In addition to these expenses, the banks also spend large sums each year to cover operating costs. Once merged, the new bank will also face pressure to repay depositors, raising concerns that much of the government’s injected capital could be consumed by expenses alone.

Officials at the Ministry of Finance, however, said that the new bank’s formation will not only involve expenditures but also generate public confidence, as people are likely to deposit more due to its state-owned status. They added that the bank’s income will also come from investments in profitable sectors.

The Financial Institutions Division (FID) of the finance ministry is overseeing all formalities for establishing the new bank, from preparing required documents to completing legal procedures. The division has already drafted the memorandum and articles of association for “Sammilito Islami Bank PLC” and sent them to the Legislative Division of the Ministry of Law for vetting. Once approved, the ministry will seek clearance for the bank’s name and apply to the Registrar of Joint Stock Companies and Firms (RJSC) for company registration, followed by a separate application to the Bangladesh Bank for the operating license. After receiving all necessary approvals, the government will begin supplying capital to the bank.

According to the plan, the bank’s authorized capital will be BDT 400 billion, with paid-up capital set at BDT 350 billion. Of that, the government will provide BDT 200 billion, out of which BDT 100 billion in cash and the remaining BDT 100 billion through issuing Sukuk bonds. Institutional depositors will receive shares of the new bank worth BDT 150 billion against their deposits under a bail-in process, in which a portion of customers’ and creditors’ claims will be converted into shares to be settled later under the proposed plan.

The Finance Division will provide capital on behalf of the government. The current fiscal year’s budget has already allocated BDT 200 billion for the bank merger. Once the FID completes the formalities, the Finance Division will begin disbursing the funds.

Officials at the Financial Institutions Division said they are overseeing the formation, board composition, and management of the new bank. Once merged, all assets and liabilities of the five private Shariah-based banks will be transferred under the new entity, which will operate as a state-owned bank. After its establishment, priority will be given to repaying small depositors first, while payments to large depositors will be made gradually.

When asked about the progress of forming the new bank, FID Secretary Nazma Mobarek told Bonik Barta, “We have already started working on establishing the new bank.”

To implement the merger of the five Shariah-based banks, the government in September formed an eight-member working committee headed by Bangladesh Bank Deputy Governor Md Kabir Ahmed. Other members include Joint Secretary of the Finance Division Md Rashedul Amin, Deputy Secretary Farid Ahmed, Joint Secretaries of the Financial Institutions Division Sheikh Farid and Mohammad Saidul Islam, Director of the Bank Resolution Department of Bangladesh Bank Mohammad Zahir Hussain, and two additional directors of the same department, Kazi Arif Uz Zaman and Mohammad Nazim Uddin. The committee’s mandate is to prepare an action plan for implementing the merger process.

Bangladesh Bank is currently reviewing the staffing and branch structure for the merged bank, including the number and locations of branches to be retained nationwide. According to central bank sources, a list is being prepared to identify which existing branches of the five banks may be relocated, and the necessary workforce for their operations is also being assessed.

Once the government’s Finance Division provides the required capital after completing the formation process, Bangladesh Bank will appoint administrators to the five banks undergoing the merger. Upon their appointment, the existing boards and managing directors of those banks will be dissolved. The administrators will then complete the process of consolidating the banks under the new institution before stepping down.

Commenting on the merger, Bangladesh Bank spokesperson and Executive Director Arif Hossain Khan told Bonik Barta, “The government is moving forward with its part, and Bangladesh Bank has organized its work. We hope the operations of the merged bank can begin within this year.”

He added that several teams from the central bank are working to advance the merger process. “The decision to appoint administrators to the five banks has not yet been implemented,” he said. “Once the government finalizes the legal aspects and releases the funds, the administrators will take charge. They will complete the merger process as quickly as possible.”

Among the five banks undergoing the merger, Exim Bank’s total assets stood at BDT 626.27 billion at the end of 2024, with deposits of BDT 428.35 billion. The bank’s nonperforming loans (NPLs) amounted to BDT 149.03 billion, while its capital shortfall stood at BDT 110.88 billion. First Security Islami Bank’s total assets reached BDT 692.17 billion, with deposits of BDT 431.41 billion. Its nonperforming loans totaled BDT 559.20 billion, and its capital shortfall was BDT 478.62 billion.

Global Islami Bank reported total assets of BDT 192.2 billion and deposits of BDT 132.9 billion. Its nonperforming loans amounted to BDT 130.88 billion, with a capital shortfall of BDT 88.81 billion. Social Islami Bank’s total assets stood at BDT 477.17 billion and deposits at BDT 309.21 billion. The bank’s nonperforming loans totaled BDT 236.33 billion, while its capital shortfall stood at BDT 216.55 billion.

Union Bank has yet to publish its audited financial report for 2024. However, as of September 2024, its total assets were BDT 303.15 billion, with deposits of BDT 229.67 billion.

The five banks currently operate 761 branches across the country. Of these, Exim Bank has 155 branches, First Security Islami Bank 206, Global Islami Bank 105, Social Islami Bank 181, and Union Bank 114.