BB waives provisioning for funds in merging banks

The Bangladesh Bank (BB) has waived the requirement to maintain provisions against funds of banks and non-bank financial institutions stuck in five merging shariah-based lenders.

The decision was taken at a recent internal meeting of the central bank, officials familiar with the matter said, at a time when more than Tk 15,000 crore remain tied up in the troubled institutions.

As these funds have not been recovered for a prolonged period, the regulator has lifted the requirement to maintain provisions against them, they added.

The five merging banks are First Security Islami Bank, Global Islami Bank, Union Bank, Social Islami Bank, and Exim Bank. They were brought under the merger process by the interim government through the Bank Regulation Ordinance, 2025.

Around Tk 10,000 crore of the stuck funds belong to Islami Bank Bangladesh alone.

Banks are required to set aside 0.5-5 percent of operating profit against general category loans, rising to 20 percent for substandard loans, 50 percent for doubtful loans, and 100 percent for bad or loss category loans.

Initially, the BB’s bank supervision departments and the financial institutions and markets department had instructed banks to maintain provisions against funds stuck in the troubled banks.

The Bank Resolution Department (BRD) later clarified that such provisioning would not be required, as the funds fall under a specific resolution framework.

“The funds are not considered a total loss. Banks may receive shares after a certain period or recover the money with profit after five years,” a central bank official said, adding that the BRD has provided assurances in this regard.

Affected institutions are expected to either recover the money directly or receive equivalent value through long-term fixed deposits or shares, said the official.

The five banks were previously controlled by politically connected figures. During the Awami League-led government, Exim Bank was under Nazrul Islam Mazumder, former chairman of the Bangladesh Association of Banks. The other four were controlled by family members of Mohammed Saiful Alam, chairman of S Alam Group.

Allegations of widespread irregularities and fund embezzlement during that period led to severe liquidity crises, leaving the banks unable to repay depositors and institutional lenders.

As of September 2024, the total investment or loans of those five banks stood at Tk 1,92,787 crore, while total deposits stood at Tk 1,58,918 crore, BB data show.