Dhaka, May 05 (V7N) – The banking sector in Bangladesh, particularly the Sharia-based banks, is facing an alarming crisis due to massive irregularities and a sharp rise in defaulted loans over the past decade and a half.

According to Bangladesh Bank, there are 10 Sharia-compliant banks currently operating in the country. These banks have accumulated defaulted loans exceeding Tk 1.03 lakh crore, which accounts for over 23% of their total disbursed loans. Despite actions like dissolving bank boards and injecting liquidity by printing money, public confidence in these institutions has not returned.

As a solution, Bangladesh Bank Governor has proposed merging the troubled Islamic banks into two entities. While the move is seen as a positive step by some, banking analysts remain skeptical about the effectiveness of such forced mergers.

“I am in favor of mergers,” said Dr. Toufiq Ahmed Chowdhury, former Director General of the Bangladesh Institute of Bank Management (BIBM). “But a forced merger may not be appropriate. When balance sheets and operations are forcibly combined, it raises serious concerns about effectiveness.”

Mohammad Nurul Amin, Chairman of Global Islami Bank, echoed similar concerns.

“There has been no forensic audit, damage assessment, or proper valuation. Whether these banks should be part of a bridge bank hasn’t been decided yet. We support the idea of consolidation, but if two large problematic entities are merged, the outcome may be even worse.”

Sector-Specific Solutions?

Some analysts suggest transforming failing Sharia-based banks into sector-specific specialized banks, such as those focused on textiles, SMEs, or agriculture.

“A bank could be assigned to the textile sector, or one for SMEs,” said Nurul Amin. “We already have examples like the agricultural bank. Such targeted responsibilities might bring better outcomes.”

However, others doubt the viability of this approach.

“We don’t have a good track record with specialized banking,” Dr. Chowdhury noted. “BRAC Bank began as an SME-focused institution but later diversified. One or two niche activities cannot define the effectiveness of a bank.”

Road Ahead: Task Force and Legislation

Bangladesh Bank has confirmed that a task force has been formed to resolve the crisis and a Bank Resolution Act is under preparation. The act will provide detailed guidelines on bank mergers, acquisitions, and crisis management.

“Some banks may be merged, others acquired,” said Arif Hossain Khan, Executive Director of Bangladesh Bank. “The more complex the merger, the harder it is to design a universally acceptable policy. Once that’s in place, implementation will become easier.”

For now, authorities say the public must wait for the task force’s report, which will guide the future course of action regarding the troubled Islamic banking sector.

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