Five Weak Banks to Merge with Islamic Banks for Financial Stability

Bangladesh is progressing with its initiative to combine five weaker banks with more robust Islamic banks, aiming to enhance the financial industry. The central bank’s initiative comes after identifying these banks under the Prompt Corrective Action (PCA) framework and is designed to restore public trust and prevent future banking crises. The banks that are going to merge are BASIC Bank, Padma Bank, National Bank, Rajshahi Krishi Unnayan Bank, and Bangladesh Development Bank Limited (BDBL). Each will join a larger Islamic bank, helping transfer their deposits and branches to stable institutions. For example, Padma Bank will be absorbed by EXIM Bank, while BASIC Bank is merging with City Bank, which also offers Islamic banking services. These mergers aim to resolve long-standing issues with non-performing loans, weak capital, and ongoing liquidity shortages. Customers often feared for the safety of their savings, and some withdrew large amounts after merger rumors. By pairing weak banks with sound Islamic banks, authorities hope to stabilize deposits, reduce risk, and maintain financial discipline. Mergers with Islamic banks bring added benefits. Islamic banks follow Shariah principles, avoiding interest-based lending and emphasizing ethical financial practices. This can attract new depositors who prefer profit-and-loss sharing models and encourage greater customer confidence. The banks preparing for merger will keep their branches and employees, as the central bank has assured that no immediate layoffs will occur for at least three years. This measure ensures smooth transitions and maintains staff morale. The banking community and regulators are cautiously optimistic. The Bangladesh Association of Banks (BAB) has expressed tentative support, noting that mergers can reduce market fragmentation and encourage stronger branding for Islamic banks. Nonetheless, they emphasize that transparency, fair asset audits, and clear communication are key to success. Industry experts also highlight the potential for operational efficiencies and improved Islamic finance offerings—such as Mudaraba deposit schemes and Ijara leases—which could appeal to small businesses, farmers, and Muslim-majority customers. Although the merger process is not without challenges—such as auditing hidden losses and integrating different systems—the regulated and ethical approach could set a standard for future bank consolidations in South Asia. If managed well, these mergers may help revive public trust, streamline operations, and support the growth of Islamic banking in the months ahead.