Bank Resolution Act, 2026

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

The newly enacted Bank Resolution Act, 2026 has introduced a significant shift in Bangladesh’s banking reform trajectory, allowing former bank owners to regain control of institutions that are currently under merger or restructuring. The move has sparked debate among economists and regulators, with critics warning that it may weaken accountability in the financial sector.

“The law appears to reward those responsible for the crisis rather than holding them accountable.” said Mr. Zahid Hussain,  former lead economist, WB, Dhaka office

Under the provisions of the new law, previous directors or owners of troubled banks can reclaim ownership by paying just 7.5 percent upfront of the funds injected by the government or the central bank. The remaining 92.5 percent must be repaid within two years, along with a 10 percent simple interest. This relatively lenient repayment structure has raised concerns about whether it adequately safeguards public funds.

The legislation marks a departure from earlier reform efforts undertaken by the interim administration in 2025. At that time, authorities introduced a resolution ordinance aimed at stabilizing the banking sector by merging five struggling Shariah-based private banks into a single state-backed entity named Sommilito Islami Bank. The merged institutions included First Security Islami Bank, Social Islami Bank, Union Bank, Global Islami Bank, and Exim Bank.

To support the merger, the government and the central bank collectively injected Tk 35,000 crore as capital, alongside additional liquidity assistance. The earlier ordinance also barred former owners from participating in the restructured banks, citing allegations of financial irregularities, including loan scams and embezzlement.

Many of these banks were previously controlled by influential business groups. Four of them had boards dominated by a major conglomerate, while another was led by a prominent industrial group chairman. These ownership structures had long been under scrutiny due to concerns over governance and related-party lending.

However, the newly passed act reverses that restriction. It empowers the central bank to approve applications from former owners or other eligible investors to acquire shares, assets, and liabilities of the restructured banks. This provision has triggered concerns about the long-term impact on governance and financial discipline.

According to central bank officials, one of the key risks is that once a bank is returned to its previous owners, it may be difficult to reverse that decision if problems re-emerge. There are also questions about whether depositors’ interests will be adequately protected under such arrangements.

To qualify for regaining control, applicants must meet several conditions. These include a commitment to fully repay all financial support received from the government and the central bank. They are also required to inject fresh capital to cover existing deficits and restore the bank’s financial stability.

In addition, the law mandates that applicants settle all outstanding claims, including those of depositors, domestic and foreign creditors, and third parties. They must also agree to restrictions on share transfers and demonstrate a commitment to improving corporate governance, risk management, and regulatory compliance.

The approval process involves strict due diligence by the central bank, followed by clearance from the government. Even after approval, the restructured banks will remain under close monitoring for two years. A special oversight committee will evaluate compliance, and failure to meet the stipulated conditions could result in cancellation of approval and further regulatory action.

Despite these safeguards, critics argue that the law may undermine earlier reform initiatives. Economists have pointed out that a significant portion of loans in these banks had already turned non-performing, many of which were linked to related parties. In their view, responsibility for the crisis lies largely with the previous sponsors and borrowers.

Allowing these same stakeholders to return to control, they argue, could set a troubling precedent. It may signal that financial misconduct does not carry meaningful consequences, potentially encouraging risky behavior in the future.

There are also concerns about the impact on the merger process itself. If former owners reclaim their institutions, the structural changes achieved through consolidation could be reversed, weakening the effectiveness of the reform strategy.

Experts warn that such policy reversals could erode confidence in institutional reforms. After extensive audits, restructuring efforts, and capital injections, any move that appears to roll back progress may raise doubts about the consistency and sustainability of regulatory actions.

At its core, the debate surrounding the Bank Resolution Act, 2026 reflects a broader tension between financial recovery and accountability. While the law aims to facilitate the revival of troubled banks, questions remain about whether it strikes the right balance between enabling recovery and enforcing responsibility.

As the implementation phase begins, all eyes will be on how the central bank enforces the new rules and whether the returning owners can meet their obligations. The outcome will likely shape the future direction of Bangladesh’s banking sector and its ongoing reform efforts.

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