A group of Shariah-based banks, including those linked to the S. Alam Group, are struggling under the weight of non-performing loans (NPLs) totalling Tk 1.3 trillion, threatening the stability of Bangladesh’s banking sector.

Bangladesh Bank data shows these defaulted loans make up over 23% of total disbursements by 10 Islamic banks. Years of alleged misappropriation and governance failures have brought the situation to a crisis point, despite repeated reform efforts.

Dissolving boards and injecting capital have yielded little, prompting the central bank to consider bolder steps. Governor Dr. Ahsan H Mansur has floated a plan to merge the weakest banks into two stronger entities. However, experts remain divided.

“I support mergers, but forced ones may backfire,” said Prof Shah Md. Ahsan Habib of BIBM. “Merging balance sheets without careful alignment is risky.”

Global Islami Bank Chairman Mohammad Nurul Amin echoed similar concerns, citing the absence of forensic audits or valuations. “Combining two major failures could worsen the problem,” he said.

Some experts propose converting the merged banks into specialised lenders for sectors like textiles or SMEs, though opinions vary on the approach’s effectiveness.

Bangladesh Bank has set up a task force and is drafting a Bank Resolution Act to guide the process. The law will detail procedures for mergers, acquisitions, and the possible use of bridge banks.

“The outcomes will depend on the law’s final form,” said central bank spokesperson Arif Hossain Khan.