[🇧🇩] Banking System in Bangladesh

[Saif]

Safeguarding depositors' interest

Depositors' trust is the cornerstone of any financial institution, whether a bank or a non-bank entity. Individuals entrust their hard-earned savings to these institutions with the belief that their money will remain safe and accessible whenever needed. This fundamental trust factor is the engine t

thefinancialexpress.com.bd

Safeguarding depositors' interest

FE
Published :
Apr 13, 2026 00:00
Updated :
Apr 13, 2026 00:00

Depositors' trust is the cornerstone of any financial institution, whether a bank or a non-bank entity. Individuals entrust their hard-earned savings to these institutions with the belief that their money will remain safe and accessible whenever needed. This fundamental trust factor is the engine that keeps banking operations running. However, history is replete with examples of financial crises, fraud and mismanagement that have jeopardised depositors' interests, underscoring the need for a foolproof protection mechanism. To this end, adoption of the 'Deposit Protection Bill 2026' in parliament on Friday last by doubling the deposit insurance coverage from Tk 100,000 to Tk 200,000 per depositor is a step in the right direction. The new law replaces the existing 'Bank Deposit Insurance Act, 2000' and, for the first time, bring non-bank financial institutions (NBFIs) under its insurance coverage. However, questions arise about the adequacy of the protection limit and whether it is sufficient to protect the savings of medium and large depositors.

Under the new law, in the event of the liquidation of a bank or NBFI, each depositor will be guaranteed a maximum payment of Tk 200,000. But what about depositors whose savings exceed this limit? The bill states that they may file claims for the remaining balance with the liquidator of the failed institution. It, however, falls short of clarifying the extent of the liquidator's obligation to compensate depositors, or the manner in which the regulatory authorities would intervene to facilitate such payments from the institution's remaining assets. If the law in question does not address the full gamut of depositor protection and merely stipulates an insurance ceiling, it is misleading to call it "Deposit Protection Act". The title of the previous law, the Bank Deposit Insurance Act, appears more appropriate.

The authorities, therefore, must clarify the full extent of depositor protection measures under the new law, as well as under the Banking Companies Act. In particular, it should be made explicit how claims beyond the insurance ceiling will be settled through liquidation processes, and what role regulatory bodies and the central bank will play in safeguarding remaining depositor funds. A transparent and comprehensive framework is essential to avoid ambiguity and ensure that depositors fully understand the level of protection available to them under the law. Otherwise, if depositors come to believe that Tk 200,000 is the maximum compensation they would receive in the event of a bank or NBFI liquidation, it is likely to trigger alarm and erode confidence. Such apprehension may prompt many to withdraw funds exceeding the insured limit, leading to a gradual decline in deposits, which, in turn, would constrain banks' lending capacity and set off a ripple effect across the broader economy.

Although no local bank has been officially liquidated in Bangladesh to date, the banking sector has been bled dry due to systematic looting and corruption during the tenure of the deposed authoritarian regime. A task force formed during the interim government found at least 10 banks as "technically bankrupt". The struggling banks were kept barely afloat through repeated injection of public funds, which is both wasteful and unsustainable in the long run. The state of over a dozen NBFIs is even worse, though their crisis have often been overshadowed by the broader banking sector crisis. In recent years, frustrated depositors have repeatedly taken to the streets demanding the return of their savings. The Deposit Protection law therefore comes at a critical juncture, when the authorities will be required to determine the fate of struggling financial institutions and safeguard depositors in the process.​

 

[Saif]

Bank Resolution Act, 2026: Doors open for ex‑owners to reclaim banks

The newly enacted Bank Resolution Act, 2026, paves the way for former owners to regain control of merging banks under relatively easy terms, a move seen as a reversal of the interim government’s banking reform.

www.thedailystar.net

Bank Resolution Act, 2026: Doors open for ex‑owners to reclaim banks

12 April 2026, 03:21 AM

Md Mehedi Hasan

The newly enacted Bank Resolution Act, 2026, paves the way for former owners to regain control of merging banks under relatively easy terms, a move seen as a reversal of the interim government’s banking reform.

Under the act, former directors or owners of banks, merging or listed for mergers, can pay 7.5 percent upfront of the amount injected by the government or the Bangladesh Bank to reclaim the banks. The remaining 92.5 percent is to be repaid within two years at 10 percent simple interest.

“The law appears to reward those responsible for the crisis rather than holding them accountable.”

Zahid Hussain, former lead economist, WB, Dhaka office

As part of its reform drive, in May 2025, the interim administration had approved the Bank Resolution Ordinance, 2025, to merge five troubled Shariah-based private banks into a state-run entity titled Sommilito Islami Bank.

The banks are First Security Islami Bank, Social Islami Bank, Union Bank, Global Islami Bank, and Exim Bank.

The government and Bangladesh Bank injected Tk 35,000 crore as capital into the merging bank, while the central bank also provided the five banks with additional liquidity support.

Under the ordinance at the time, former owners were barred from involvement, as many were accused of financial scams and embezzlement.

The boards of four of the banks were dominated by the controversial S Alam Group, led by its Chairman Mohammed Saiful Alam, while Exim Bank was long controlled by Nassa Group Chairman Md Nazrul Islam Mazumder.

The BNP-led government has now amended the ordinance, passing it into law in parliament on Friday after Finance Minister Amir Khosru Mahmud Chowdhury placed it before the House.

Bangladesh Bank officials told The Daily Star that concerns remain over how these banks will be managed if former owners return and whether depositors will be able to recover their money.

They also said that if a bank is returned to its previous owners, it cannot easily be taken back again.

“This raises doubts about whether they would be able to run the banks properly and ensure full legal and regulatory compliance,” one official said, adding that the return of the previous owners could hinder the ongoing merger process.

The act empowers the Bangladesh Bank to permit previous owners or other eligible applicants to acquire a bank’s shares, assets, and liabilities.

Under the new law, applicants, including former directors or investors, must commit to fully repaying all financial support previously extended by the government and the central bank.

They are required to inject fresh capital to address existing deficits and restore financial health, and settle outstanding claims of depositors, domestic and foreign creditors, and third parties.

About accountability during the banks’ restructuring process, the act states that any losses incurred by individuals or institutions must be compensated.

The applicants must also agree to restrictions on share transfers and commit to strengthening corporate governance, risk management, and compliance structures.

Before approval, the Bangladesh Bank will have to conduct due diligence and seek the government’s clearance. Even after approval, the central bank will closely monitor the merged entity for two years, with a special committee reviewing compliance.

Failure to meet conditions could lead to cancellation of approval and further regulatory action under existing laws.

Contacted for comments on the new law, Zahid Hussain, former lead economist at the World Bank’s Dhaka office, warned that the provision undermines past reform efforts.

“If, under this law, the previous owners return and reclaim their organisations, the integrity of the new structure created after the merger could be lost. In that case, all merger-related work would effectively become meaningless,” he said.

He said it is widely understood that a large portion of loans in these banks have already turned bad, largely taken by related parties.

“The responsibility for this distress lies with the sponsors and related borrowers,” he said. Allowing them to return, he argued, will set a damaging precedent.

“It reinforces a culture of impunity in the financial sector, where wrongdoing is not punished. Governance will weaken further.

“After so many reforms, audits, and a formal merger process, if everything can be reversed through a legal adjustment, it raises serious doubts about the sustainability of institutional reform,” Zahid said.

“Ultimately, the law appears to reward those responsible for the crisis rather than holding them accountable,” he added.​