Widespread irregularities, corruption, and looting have left nearly two dozen banks in Bangladesh in a fragile state. The list includes state-owned, private, and foreign banks. To address this crisis, the government has empowered Bangladesh Bank to merge or acquire these failing banks under the newly issued ‘Bank Resolution Ordinance, 2025.’ The ordinance came into effect last Friday (May 9).
The ordinance, comprising 98 sections, authorizes the central bank to resolve any scheduled bank deemed non-viable or unlikely to recover. In this context, “resolution” means taking any necessary measures against a failing bank, with the primary aim of safeguarding depositors’ interests.
The ordinance also allows the government and Bangladesh Bank to temporarily nationalize troubled banks. To facilitate this, Bangladesh Bank can issue one or more share transfer orders. The acquiring entity must be a state-owned company. If a bank’s beneficiary owner is found to have misused the bank’s assets or funds—directly or indirectly—for personal or fraudulent purposes, the central bank has the authority to initiate a resolution process for that bank.
During Sheikh Hasina’s decade and a half in power, over a dozen private banks were approved without proper scrutiny. Many of these approvals were reportedly based on political considerations, rather than economic necessity. Bangladesh currently has 61 scheduled banks: six state-owned commercial banks, three state-owned specialized banks, and 43 private commercial banks—including 10 Islamic banks. Additionally, nine foreign banks operate in the country.
Alongside banks, 35 non-bank financial institutions (NBFIs) operate under licenses from Bangladesh Bank. Like the banking sector, many NBFIs have also suffered from looting and mismanagement. As a result, at least 20 of these institutions are now in critical condition.
According to Bangladesh Bank data, total defaulted loans in the banking sector stood at over BDT 3.45 trillion as of last December. This accounted for 20.20 percent of total disbursed loans. However, central bank officials have revealed that the actual default rate has already surpassed 30 percent. They said that the amount of defaulted loans reported by banks in December 2024 was significantly lower than the actual figure. Many of these hidden defaults are now being uncovered through inspections by the central bank. As a result, financial reports for around 25 banks have not been given final approval. If the defaulted loans of these banks are included, the overall default rate would exceed 30 percent.
The draft of the ‘Bank Resolution Ordinance, 2025’ was approved at a meeting of the interim government’s Advisory Council on April 17. The ordinance was officially published in the government gazette last Friday (May 9) after completing necessary procedures.
Mohammad Abdul Mannan, Chairman of First Security Islami Bank and Vice Chairman of the Bangladesh Association of Bankers (BAB), hailed the ordinance as a major step forward in banking sector reform. Speaking to Bonik Barta, he said, “Given the country’s economic condition, we don’t need 61 banks. Many of these institutions have been ruined by corruption and irregularities. Now is the best time to reduce the number of banks by resolving the weak and failing ones. With the ordinance in place, it’s now up to Bangladesh Bank to act swiftly.”
He also emphasized the need to define the role and focus of each surviving bank after the resolution process. He said, “All banks shouldn’t be competing for the same customers with identical products and services. Each bank should serve its assigned purpose. That would help the economy recover faster.”
Under the ordinance, Bangladesh Bank has the authority to appoint temporary administrators to troubled banks, provided there are valid reasons. The central bank can also increase the capital of any bank through existing or new shareholders. Furthermore, it may transfer a bank’s shares, assets, or liabilities to a third party.
Under the ‘Bank Resolution Ordinance, 2025’, if the Bangladesh Bank determines that a bank is non-viable, bankrupt or heading toward bankruptcy, or unable to repay depositors, the central bank will have the authority to take any decision in the interest of restoring the health of such banks. It also states that a dedicated unit will be established within Bangladesh Bank to exercise, carry out, and oversee the powers, duties, and functions related to bank resolution in order to fulfill the objectives of the ordinance.
The ordinance also allows the creation of one or more “bridge banks” to continue critical operations of a resolved bank. These bridge banks may later be sold to third parties. The central bank may suspend or restrict all business activities of a failing bank. A bridge bank, managed by Bangladesh Bank, would temporarily run the operations of such weak banks.
The ordinance proposes the formation of a seven-member inter-agency council called the ‘Banking Sector Crisis Management Council.’ The council will be tasked with preparing crisis management strategies and emergency plans. It will be led by the Governor of Bangladesh Bank and include the finance secretary, the secretary of the Financial Institutions Division, the chairman of the Bangladesh Securities and Exchange Commission (BSEC), the legislative and parliamentary affairs secretary, the designated deputy governor responsible for resolution, and another deputy governor nominated by the governor. The council is expected to meet once every three months.
The ordinance further states that if a bank’s license is revoked, Bangladesh Bank must petition the court to begin its liquidation process. The court will then appoint a liquidator nominated by the central bank. Once the liquidation order is enforced, no interest or additional charges will accrue on the bank’s liabilities. A bank may also voluntarily enter the liquidation process, but it cannot shut down operations without prior approval from Bangladesh Bank. Once the license is revoked, the bank must repay deposits within seven working days and settle all other liabilities within two months.
The ordinance also introduces provisions for holding individuals personally liable if their actions, inaction, or decisions lead to a bank’s failure and financial losses. Anyone who violates the rules issued under the ordinance will face a penalty of BDT 5 million. In addition, a daily fine of BDT 5,000 will be imposed for each day of noncompliance.
The ordinance also mandates the creation of a ‘Bank Restructuring and Resolution Fund.’ The fund will be managed through a separate account under Bangladesh Bank. It will remain distinct and independent from the central bank’s other funds. The liabilities and assets of Bangladesh Bank will not be included in this fund.
Regarding the suspension of legal proceedings, the ordinance allows a provision stating that Bangladesh Bank can apply to the relevant court for an order to suspend any ongoing legal proceedings against a bank under the resolution process. Upon receiving such a petition, the court can unilaterally issue an order to suspend all legal proceedings against that bank for a period of up to 12 months. If the resolution process is not completed within this period, the court may further extend the stay until the process is concluded under the ordinance.