Bangladesh plans merger of Shariah banks into two major Islamic lenders

Central bank aims to reform troubled Islamic banking sector grappling with poor oversight and capital shortfalls

DHAKA, Bangladesh (MNTV) — Bangladesh’s central bank plans to consolidate all 10 of the country’s Shariah-compliant lenders into two major Islamic banks, in a bid to overhaul a sector grappling with poor governance, legal loopholes, and persistent financial instability.ic banks as part of a sweeping reform to address governance and financial challenges in the sector.

The announcement came from Governor Ahsan H Mansur at the Annual Banking Conference of the Bangladesh Institute of Bank Management (BIBM) on Wednesday, where he emphasized the urgent need to restructure the Islamic banking landscape.

According to a report by The Daily Star, Mansur, who also chairs the BIBM governing board, said the Islamic banking sector suffers from weak regulation, capital shortfalls, and poor oversight. “Most of these banks are in trouble,” he said. “We aim to bring structural reform by forming two strong Islamic banks through mergers.”

He added that the central bank is working to plug legal gaps in the regulatory framework and is also collaborating with international organizations to trace and recover laundered funds. “We will make the lives of looters difficult so others are discouraged,” he said, calling for the cooperation of all stakeholders in the recovery process.

Highlighting the broader issues affecting the financial sector, Mansur stressed the need for a unified and autonomous regulatory regime. “We know there has been a lot of interference and dual governance in the banking sector, and this needs to end,” he said.

The Bangladesh Bank is currently strengthening its supervisory and regulatory capacity, aiming to prevent irregularities without micromanaging daily operations. “We are building mechanisms to detect issues early while preserving operational independence for banks,” he added.

As part of ongoing reforms, the central bank has already restructured the boards of 13 banks, and Mansur warned that more interventions are likely. “This is an ongoing process. The message is loud and clear — we will intervene further when necessary.”

Mansur also noted that significant amendments to the Bank Company Act are underway, with a focus on tightening governance standards, particularly at the board level. “The central bank was also part of the problem, and we want to address this,” he said.

Most troubled banks are currently operating with capital deficits, he admitted, cautioning that meaningful recovery will take years and require political consensus.

The conference also featured insights from Abdul Hannan Chowdhury, vice-chancellor of North South University, who delivered the keynote paper. Chowdhury emphasized that trust, rooted in good governance and ethics, is fundamental to a sound banking system.

He identified political interference, lack of accountability, and appointment of figurehead directors as key threats to the sector’s integrity. “To restore public confidence, we must strengthen corporate governance, enhance transparency, and promote ethical leadership,” he said.

Chowdhury also advocated for whistle-blower protection, independent audit committees, and strict penalties for unethical conduct.

Md Akhtaruzzaman, director general of BIBM, presided over the event, which brought together local and international experts to discuss contemporary issues in banking and finance.