Overview of the Bank Resolution Ordinance 2025
Bangladesh Bank has issued a statement clarifying that under the Bank Resolution Ordinance 2025, there is currently no provision to protect the interests of investors or shareholders during the ongoing merger of five Shariah-based banks. The central bank emphasized that the ordinance does not include any mechanisms to safeguard these groups during the process.
However, the government may explore options for compensating small investors to ensure their interests are protected. This clarification comes amid growing concerns among stock market investors regarding the merger of the five Islamic banks: First Security Islami Bank, Global Islami Bank, Union Bank, EXIM Bank, and Social Islami Bank.
Impact on Investors and Shareholders
Earlier, Bangladesh Bank Governor Ahsan H Mansur stated that the shares of these troubled banks have become worthless. Shares with a face value of Tk 10 have turned negative, leaving investors with nothing to recover. This situation has raised significant concerns about the financial stability of these institutions and the potential losses faced by stakeholders.
According to the central bank, the Bank Resolution Ordinance 2025 was formulated in line with international best practices. It received technical support and feedback from organizations such as the International Monetary Fund (IMF), World Bank, and the UK’s Foreign, Commonwealth & Development Office (FCDO). The ordinance outlines the rights of depositors, shareholders, and other creditors of the banks under its jurisdiction.
Key Provisions of the Ordinance
Under four provisions of the ordinance, Bangladesh Bank may impose losses on shareholders, responsible persons, and holders of Additional Tier-1 and Tier-2 capital (excluding subordinated debt holders) of any scheduled bank placed under resolution. This means that those who invested in these banks may face significant financial repercussions.
Additionally, Section 40 of the ordinance allows for compensation to shareholders if they suffer losses greater than what they would have incurred under a liquidation scenario. Such compensation will be determined based on an independent valuation conducted by Bangladesh Bank after the resolution process is completed.
Findings from Asset Quality Reviews
Analyses of data from the Asset Quality Review (AQR) and special inspections conducted by international consulting firms indicate that the banks are facing massive losses, with negative net asset values. These findings highlight the severity of the financial challenges these institutions are experiencing.
In a meeting of the Banking Sector Crisis Management Committee held at Bangladesh Bank in September, it was decided that the shareholders of the five troubled banks would have to bear the burden of the losses during the resolution process. This decision underscores the central bank’s stance that the current framework does not allow for the protection of general investors or shareholders in the merger process.
Despite this, the central bank acknowledged that the government may explore measures to compensate small investors. This could provide some relief to those who have suffered significant losses due to the ongoing crisis.
Conclusion
The Bank Resolution Ordinance 2025 represents a critical step in addressing the challenges faced by the banking sector in Bangladesh. While it provides a structured approach to resolving the issues of the five Shariah-based banks, it also highlights the risks and uncertainties faced by investors and shareholders. As the resolution process unfolds, the focus will remain on ensuring transparency, fairness, and accountability in the handling of these financial institutions.