The interim government is preparing to introduce a new ordinance to facilitate the transfer of weak banks to third parties. Under the proposed ‘Bank Resolution Ordinance 2025,’ crisis-ridden banks will initially be managed through a ‘bridge bank.’ If their financial condition does not improve, they may be sold, transferred, or liquidated. This initiative is being spearheaded by the Financial Institutions Division of the Ministry of Finance.
New Ordinance for Bank Resolution: The Financial Institutions Division has published a draft of the ‘Bank Resolution Ordinance 2025’ to streamline the process of managing and liquidating weak banks. As the country currently lacks an active parliament, the ordinance will be issued through executive order. If enacted, Bangladesh Bank will establish a ‘bridge bank’ to take control of struggling financial institutions. Should this interim measure fail to stabilize a bank, the central bank will have the authority to merge, sell, or transfer its assets and liabilities to a third party.
Bangladesh Bank’s Expanded Authority: The proposed ordinance will significantly enhance the powers of Bangladesh Bank.
It will be able to: Temporarily bring a struggling scheduled bank under government ownership, Transfer bank shares to a government-nominated individual or a state-owned company, suspend operations of failing banks and revoke their licenses, if necessary, enforce capital restructuring and initiate legal action against those responsible for financial mismanagement. Crisis-Ridden Banks Under Scrutiny: Currently, 11 banks are classified as weak, with five in extreme financial distress. Of these, four are controlled by the S Alam Group: Bangladesh Commerce Bank, First Security Islami Bank, Global Islami Bank, and Union Bank. These banks are struggling to repay customer deposits, as a significant portion of their loans were issued to related parties and are now deemed unrecoverable. Despite frequent requests for liquidity support, Bangladesh Bank has withheld additional financial assistance, causing ongoing disruptions for depositors.
Urgent Need for Banking Reforms: Bangladesh Bank Governor Dr. Ahsan H. Mansur acknowledged the severe governance issues plaguing the banking sector. “Everyone knows the problems within the banking industry. We are working to rehabilitate struggling banks by restoring good governance. However, some banks are beyond saving due to excessive insider lending,” he stated.
Strengthening the Regulatory Framework:Currently, Bangladesh Bank lacks the authority to take strict action against failing banks. However, the proposed ‘Bank Resolution Ordinance 2025’ would empower the central bank to take decisive steps, including:Suspending operations of a failing bank. Cancelling banking licenses, transferring assets, liabilities, and ownership to a third party, holding bank owners accountable for financial mismanagement, Forcing capital injections from new shareholders.
If the ordinance is enacted, Bangladesh Bank will gain extensive control over crisis management, marking a major shift in the country’s financial regulatory framework. The move aims to protect depositors and restore stability in the banking sector.
Bridge Bank to be Formed Under Central Bank’s Oversight: The proposed ‘Bank Resolution Ordinance 2025’ outlines the formation of one or more ‘bridge banks’ under the supervision of Bangladesh Bank to manage struggling financial institutions and facilitate their eventual sale to third parties. These bridge banks will provide essential banking services while working to stabilize the financial condition of failing institutions.
Key Functions of Bridge Banks: Bridge banks will be responsible for ensuring the continuity of critical banking operations while addressing financial instability. They will have the authority to raise funds from new or existing directors of the troubled banks to strengthen their financial position. Bangladesh Bank will issue banking licenses to bridge banks with specific conditions tailored to their operations.
Once a bridge bank begins operations, the banking license of the failed institution will be revoked, and its remaining assets and liabilities will be liquidated. The operations of the bridge bank will be overseen by board members and senior officers appointed by Bangladesh Bank.
Governance and Limitations:The bridge bank will take responsibility for the secured deposits of the failed bank but will not inherit the liabilities of individuals and institutions linked to the troubled entity. The tenure of a bridge bank will initially be set for two years from the date of asset and liability transfer, with the possibility of an extension. However, in no case shall the term exceed five years.
Exit Strategy:If a bridge bank fails to fulfill its responsibilities within the stipulated period, Bangladesh Bank will have the authority to merge it with another financial entity and sell its assets, rights, and obligations to a third party. This mechanism ensures that weak banks are managed efficiently, protecting depositors and maintaining stability in the banking sector.
