Bangladesh Launches Historic Consolidation of Five Islamic Banks
October 2, 2025 — In a groundbreaking restructuring initiative, Bangladesh’s banking regulators are merging five struggling Islamic financial institutions into a single, government-backed entity tentatively named United Islami Bank. This comprehensive reform, officially launched in September 2025, addresses deep-rooted governance issues and excessive non-performing loans that have compromised the sector’s credibility and stability.
A Bold Response to Systemic Challenges
The Islamic banking sector in Bangladesh has long served as a crucial pillar for ethical, Shariah-compliant financing, representing over one-quarter of the nation’s total banking assets. With faith-based deposits reaching Tk 4.57 trillion as of June 2025, these institutions play a vital role in the country’s financial ecosystem. However, chronic problems including mismanagement, politically influenced lending practices, and governance failures linked to powerful business conglomerates like the S Alam Group have severely undermined the sector’s foundations.
Independent audits revealed alarming non-performing loan rates across the five targeted institutions: First Security Islami Bank, Social Islami Bank, Global Islami Bank, Union Bank, and Export Import Bank of Bangladesh. The default rates are staggering, with Union Bank facing 98% defaults, First Security Islami Bank at 96%, Global Islami Bank at 95%, Social Islami Bank at 62%, and Export Import Bank at 48%.
Together, these banks manage Tk 1.40 lakh crore in depositor funds and Tk 1.95 lakh crore in loans, operating with a 140% loan-to-deposit ratio that significantly exceeds the regulatory limit of 92%. They currently depend on Tk 26,900 crore in central bank support to maintain operations.
Regulatory Action and Legal Framework
On September 16, 2025, Bangladesh Bank, under the leadership of Governor Dr. Ahsan H. Mansur, approved the merger under the Bank Resolution Ordinance 2025. The decision aims to eliminate systemic risks and restore depositor confidence in Islamic banking. Senior central bank official Arif Hossain Khan stated that the consolidation would “eliminate persistent irregularities and strengthen client trust.”
The newly formed United Islami Bank is expected to control assets worth approximately Tk 2.20 lakh crore, making it the largest financial institution in Bangladesh by asset size and positioning it as a strong competitor to established players like Islami Bank Bangladesh Limited.
Implementation Strategy and Timeline
The merger process is designed to unfold over a minimum of 24 months while maintaining uninterrupted banking services. On September 28, 2025, Bangladesh Bank appointed observer teams to oversee the transition, deploying five-member groups to each institution. These teams include central bank representatives such as Md. Shawkat Ullah Alam for Export Import Bank, Muhammad Badiul Alam Didar for Social Islami Bank, Md. Salahuddin for First Security Islami Bank, Mohammad Abul Hashem for Union Bank, and Maksudul Alam for Global Islami Bank.
The observer teams work alongside existing management, with current chief executives retaining their roles to ensure service continuity. A central coordination office at Sena Kalyan Bhaban in Motijheel oversees the integration of deposits, loan portfolios, digital systems, and human resources.
Financial Recapitalization Plan
To achieve financial stability, the government will inject Tk 20,200 crore, supplemented by Tk 15,000 crore from institutional reserves and deposit reallocations, totaling Tk 35,200 crore to meet international capital adequacy standards. All assets and liabilities will transfer to United Islami Bank once it receives its operating license from the central bank.
Upon completion, the consolidated bank will operate nearly 800 branches and employ over 16,000 staff members, exceeding competitors in geographic coverage. Existing board structures will be phased out systematically, and share prices rose 20-30% in late September, indicating emerging market optimism. The Bank Companies Act 1991 and updated central bank regulations ensure transparency, with final approval expected from the advisory council in October 2025.
Economic Implications and Market Impact
This consolidation has the potential to reshape Bangladesh’s Tk 7 trillion Islamic finance sector, which grew 3.22% in deposits through June 2025 and is projected to expand 10-12% annually until 2030. With a Tk 2.20 lakh crore asset base, the new institution could capture 15-20% of the market share, challenging the dominance of Islami Bank Bangladesh Limited and setting new standards for Islamic banking governance.
Depositors stand to benefit significantly. Accounts under Tk 5 lakh face no withdrawal restrictions, while larger deposits may convert to equity stakes, reducing the burden on public finances. Indonesia’s 2021 Islamic bank merger offers a precedent for operational improvements, though challenges remain substantial.
Concerns and Potential Obstacles
Critics highlight the limited involvement of the Bangladesh Securities and Exchange Commission, raising questions about shareholder protections and market concentration. The initial capital injection of Tk 10,000-12,000 crore may prove insufficient to address the Tk 38,300 crore capital deficit or the Tk 74,500 crore in provisioning shortfalls, potentially straining government resources.
Employee concerns about compensation adjustments persist despite assurances of no layoffs, affecting the 17,785 staff members involved. Finance Minister Dr. Salehuddin Ahmed cautions that “sustained administrative discipline is essential, lest the merged entity replicate the chronic failures of state-owned banks.”
Success in this endeavor could catalyze similar reforms for conventional banks, potentially elevating the financial sector’s 3-4% contribution to national GDP.
Guidance for Stakeholders
For Depositors: Stay informed through Bangladesh Bank announcements and diversify holdings, limiting exposure to any single Islamic bank to 20% of total assets. Verify account details and maintain documentation throughout the transition.
For Investors: The recent share price surge presents opportunities, but investors should carefully analyze ownership dilution, which averaged 23.8% before the merger. Expected returns of 15-25% depend on recovering 30% of non-performing loans over the next two years. Monitor disclosures on Bangladesh Bank’s website and the Dhaka Stock Exchange.
For Employees: Engage through labor organizations to access skill development programs, given the central bank’s commitment to avoiding terminations. Pursue professional training to align with the expanded institution’s requirements.
For Businesses: Explore financing opportunities with the enlarged bank, particularly in trade finance, leveraging Export Import Bank’s established expertise in this area.
For Islamic Banking Customers: Expect improved Shariah compliance through forthcoming central bank guidelines on audits and ethical training. Advocate for fair treatment through the Bangladesh Association of Banks.
Looking Ahead: A New Era for Islamic Finance
As October 2025 unfolds, the creation of United Islami Bank represents a pivotal moment in Bangladesh’s pursuit of financial stability and ethically grounded banking. By consolidating five troubled institutions into a unified, sustainable entity, this initiative aims to restore confidence in faith-based finance, drive sustainable growth, and establish an international benchmark.
The success of this ambitious undertaking depends on rigorous governance, transparent execution, and active participation from all stakeholders. For depositors, investors, and the broader economy, this transformative reform charts a path toward a more equitable and prosperous financial sector, provided accountability remains the guiding principle throughout the process.
The merger of these five Islamic banks into United Islami Bank is not merely a financial restructuring—it represents Bangladesh’s commitment to preserving Islamic banking principles while implementing world-class governance standards. As the consolidation progresses, the nation watches closely, hoping this bold initiative will serve as a model for banking sector reform across South Asia and beyond.
Original Article:
Halal Times. (2025, October 6). Bangladesh makes Significant Move to Merge 5 Islamic Banks. Retrieved from https://www.halaltimes.com/bangladesh-makes-significant-move-to-merge-5-islamic-banks/
