Controversial Law Lets Failed Bank Owners Reclaim Control

Bangladesh’s newly enacted Bank Resolution Act has sparked widespread debate, after a contentious provision paved the way for former owners of distressed or merged banks to regain control under comparatively relaxed financial conditions. The legislation, which replaces an earlier ordinance issued during the interim administration, has been passed by parliament with most of its original structure intact—yet a late addition has overshadowed its broader reform intent.

At the centre of the controversy lies a newly inserted clause, commonly referred to as Section 18(a), which allows previous shareholders of banks placed under resolution to reapply for ownership. Applications must be submitted to Bangladesh Bank, which has been designated as the resolution authority overseeing the restructuring process.

Relaxed Financial شروط Raise Alarm

The most debated aspect of the law is its financial threshold for ownership restoration. Former owners are required to pay only 7.5 per cent of the total public funds injected into the failing bank as an upfront amount. The remaining 92.5 per cent can be repaid within two years, subject to a simple interest rate of 10 per cent.

This provision has triggered serious concern among economists and policy experts, many of whom argue that it effectively lowers the barrier for re-entry into the banking sector for individuals previously linked to mismanagement or financial irregularities.

Key Financial Terms of Ownership Restoration

Obligations Attached to Ownership Return

Applicants seeking to reclaim ownership must submit a formal undertaking outlining several commitments. These include:

• Repayment of all financial assistance provided by the government and Bangladesh Bank
• Injection of new capital to restore solvency
• Settlement of all depositor claims and third-party liabilities
• Payment of outstanding taxes and statutory dues

Despite these requirements, critics argue that the law allows ownership to be transferred before these obligations are fully met, relying largely on future promises rather than upfront compliance.

Concerns Over Governance and Accountability

Financial analysts warn that the provision could undermine ongoing efforts to stabilise the banking sector. A senior official from Bangladesh Bank, speaking on condition of anonymity, noted that the clause enables former owners to “return at minimal cost”, potentially reversing hard-earned progress in reforming troubled institutions.

There is also concern that once ownership is restored, regulatory authorities may find it difficult to remove such stakeholders again, particularly in a system where legal and institutional enforcement can be complex.

Background: Banking Crisis and Consolidation

The legislation follows a period of significant turbulence in Bangladesh’s banking sector. Several financially troubled institutions—including EXIM Bank, Social Islami Bank, First Security Islami Bank, Union Bank, and Global Islami Bank—were merged into a consolidated entity known as Combined Islami Bank.

This restructuring was necessitated by severe liquidity crises and the inability of these banks to meet depositor obligations. The government intervened with substantial financial support, eventually bringing the merged entity under administrative control.

Financial Snapshot of the Merged Entity

Legislative Controversy

Notably, sources suggest that the controversial clause was absent from the draft initially reviewed by a 10-member committee comprising officials from the finance ministry, legal division, and Bangladesh Bank. The provision was reportedly inserted shortly before the bill was presented in parliament.

Committee members had earlier recommended stricter safeguards, including mandatory full repayment of liabilities before ownership restoration and permanent disqualification of individuals responsible for financial misconduct. These proposals, however, were not fully reflected in the final legislation.

Broader Powers and Reform Framework

Beyond the disputed clause, the Act grants extensive authority to Bangladesh Bank to manage failing banks. These include powers to appoint administrators, restructure capital, transfer assets and liabilities, establish bridge banks, and initiate liquidation where necessary.

While these provisions are seen as vital tools for crisis management, their impact has been overshadowed by concerns surrounding ownership restoration.

Public Reaction and Future Outlook

Public response has been largely critical, with many fearing that the law could erode trust in the banking system. Allowing previously discredited owners to regain control, even conditionally, is viewed by some as a step backwards in ensuring accountability.

Economists stress that sustainable financial reform requires both strong regulatory oversight and firm consequences for past failures. Without these, they warn, the new framework risks incentivising reckless behaviour rather than preventing it.

As implementation begins, attention will turn to how Bangladesh Bank handles applications under the new provision. The coming months are likely to be pivotal in determining whether the law strengthens institutional resilience or deepens existing vulnerabilities within the financial sector.