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The fate of the merger of five struggling Islamic banks to form the 'Sammilito Islamic Bank PLC' hangs in the balance, with increasing signs pointing to its potential dissolution less than five months into its journey.
Sources at Bangladesh Bank (BB) confirm that at least one partner bank has formally applied to exit the merged entity, while another is reportedly considering a similar move, casting a shadow over the future of what was initially touted as a critical initiative to stabilize the country's troubled Islamic banking sector.
The merger, finalized on December 21 last year, brought together Exim Bank, First Security Islami Bank, Global Islami Bank, Union Bank, and Social Islami Bank Limited (SIBL).
The primary objective was to consolidate these distressed institutions under a single umbrella, restructure their operations, address severe liquidity shortages, and, crucially, restore waning depositor confidence.
However, five months into the merger, anticipated progress has remained elusive. The bank’s operations have not fully normalized, and the process of returning depositor funds is moving slowly, in many cases failing to meet stated commitments. This has exacerbated the initial confidence crisis rather than alleviating it.
The most significant development underscoring the turmoil is the formal application by SIBL to the central bank requesting permission to withdraw from the combined structure. The application, filed by a sponsor director and former chairman of SIBL, Rezaul Haque, has ignited considerable debate within the financial sector.
Javedul Alam Chowdhury, a former director of SIBL, told UNB that the application was made utilizing the provisions of Section 18(A) of the newly incorporated Bank Resolution Ordinance, with the full consent of SIBL's previous board.
Simultaneously, reports suggest that Exim Bank is also actively exploring a similar course of action. The distinct positions taken by these two prominent institutions highlight a critical lack of cohesion and confidence within the merged structure.
Financial analysts contend that the merger was inherently high-risk from its inception, primarily because the financial health of all five participating banks was exceptionally precarious before the amalgamation.
Data from the Bangladesh Bank reveals non-performing loans (NPLs) ranging from 48 percent to a staggering 97 percent across the five banks, totaling nearly Tk 1.5 lakh crore out of a total loan portfolio of Tk 1.96 lakh crore—the vast majority of which is considered irrecoverable.
Experts argue that grouping weak banks together without fundamentally addressing their core structural and management flaws cannot provide a sustainable solution to their deep-seated problems.
To keep these banks afloat, the government and the central bank have provided substantial liquidity support, sometimes amidst allegations of creating money for this purpose.
The merger itself was facilitated with government funding. The lack of visible progress towards stability despite such extensive support has raised serious questions about the effectiveness of the policy decisions that led to the merger and their long-term implications for the financial sector.
Further complicating the situation is the recently enacted bank resolution framework, which introduces various alternatives, including liquidation, transfer to a bridge bank, transfer to a new investor, and the option for former shareholders to reclaim ownership.
The addition of Section 18(A), in particular, allowing previous owners a path back to control, has generated fresh controversy. Critics question whether returning ownership to those under whose stewardship the banks initially faltered will not lead to a resurgence of past irregularities and weaknesses, thereby undermining the original rationale for the merger.
Perhaps the most significant challenge facing Sammilito Islamic Bank is restoring the trust of its massive customer base. With approximately 91.5 lakh accounts and a workforce of over 15,000, the bank's future directly impacts the lives of a vast number of customers and employees. However, the reality is stark: many branches report declining customer footfall and a reduction in new deposits.
Limits on cash withdrawals have increased customer hardship and frustration. One customer expressed the prevailing sentiment, stating, "It feels risky to keep money, and there are problems withdrawing it—how can we trust the bank under these circumstances?"
Internally, uncertainty is rampant among bank staff. A branch manager, speaking on condition of anonymity, emphasized the need for clear directives. "If the Bangladesh Bank provides specific guidelines and we can work accordingly, then we can gradually normalize customer services." In contrast, the central bank asserts that the merger process is ongoing and that efforts to strengthen the bank's operational structure, including the appointment of managing directors and board reconstitution, are underway.
According to sources within Bangladesh Bank, the government will ultimately decide the future of Sammilita Islamic Bank, with the central bank responsible for implementing that decision. A spokesperson for the central bank, Arif Hossain Khan, clarified that the government's intention was never to permanently retain control of these banks through the merger.
Instead, the plan is to allow them to return to the private sector once their situation improves. "If anyone wants to invest and take over the responsibility of this bank, they will be welcomed," he stated.
In its application to the central bank, SIBL proposed a plan to operate independently and restructure its operations.
The proposal includes targets to reduce NPLs to 25 percent by December, minimize risky assets, strengthen the capital structure, reactivate 22 government accounts to bring back nearly Tk 500 crore, and secure Tk 11,000 crore in liquidity support for a period of 10 years. However, analysts believe achieving these targets amidst such a profound financial crisis is extremely challenging and would require exceptionally robust management and stringent regulatory oversight.
As the situation unfolds, critical questions remain: Is the merger model fundamentally viable in this instance? Can the entity survive if partner banks continue to seek exits? Will returning control to former owners merely reintroduce old problems? What actions are necessary to genuinely restore customer confidence? And ultimately, what is the government’s definitive strategy for these banks—restructuring, privatization, or dissolution?
