Bangladesh Bank has decided to place administrators in five struggling Shariah-based banks ahead of their merger into a new state-owned entity, in what officials describe as a landmark intervention in the country’s troubled banking sector.

The central bank board, chaired by Governor Dr Ahsan H. Mansur, approved the move at a special meeting on Tuesday after rejecting bail-in plans submitted by the banks.

First Security Islami Bank, Social Islami Bank, Global Islami Bank, Union Bank, and Exim Bank will be consolidated into a new lender tentatively named United Islami Bank.

“The CEOs of the banks will remain, but administrative teams led by Bangladesh Bank executives will take control. The boards will stay in place technically, but their functions will be suspended,” central bank spokesperson Arif Hossain Khan said.

Officials confirmed that each bank will have an administrator supported by four central bank officers, who will report to a supervisory unit within the regulator.

The government has pledged Tk 200bn in capital for the consolidation, though the central bank estimates the full requirement at Tk 352bn. Additional funds may be sought from development partners.

Bangladesh Bank data show that between 48% and 98% of loans at the five lenders are now in default. The merger process is expected to take at least two years.

The decision follows years of allegations of irregularities and corruption in Islamic banking, much of it linked to the S Alam Group and NASA Group.