Bangladesh makes Significant Move to Merge 5 Islamic Banks

Bangladesh’s financial authorities are executing a sweeping reform by integrating five underperforming Shariah-compliant institutions into one robust, state-supported lender, preliminarily called United Islami Bank. This initiative, formalized in September 2025 and gaining momentum into early October, confronts longstanding operational flaws and high levels of overdue advances that have strained the sector’s integrity. The resulting organization is anticipated to manage assets totaling approximately Tk 2.20 lakh crore, establishing it as the country’s premier financial entity in terms of magnitude and rivaling frontrunners such as Islami Bank Bangladesh Limited. Bolstered by substantial state funding, the effort prioritizes the protection of client funds and advances the cause of principled, faith-oriented financial services within an environment where Shariah-based savings have climbed to Tk 4.57 trillion as of June 2025. This detailed examination equips clients, market participants, and sector analysts with a thorough understanding of the consolidation’s framework, consequences, and strategic recommendations.

Confronting Systemic Vulnerabilities in Shariah Finance

The domain of Shariah-adherent banking in Bangladesh, which accounts for more than a quarter of overall banking resources, has served as a vital channel for equitable and morally guided funding, centered on shared risks and permissible ventures. Regrettably, persistent disruptions—ranging from administrative shortcomings and preferential lending to ethical breaches tied to prominent business networks like the S Alam Group—have eroded its foundation. Independent evaluations exposed overdue advance rates between 48% and 98% in the designated institutions: First Security Islami Bank, Social Islami Bank, Global Islami Bank, Union Bank, and Export Import Bank of Bangladesh. Notably, Union Bank grapples with a 98% default rate, trailed by First Security Islami Bank at 96%, Global Islami Bank at 95%, Social Islami Bank at 62%, and Export Import Bank at 48%. Collectively, these entities oversee Tk 1.40 lakh crore in client funds and Tk 1.95 lakh crore in advances, maintaining a 140% advance-to-fund ratio that violates the 92% ceiling set by regulators, while relying on Tk 26,900 crore in support from the central authority. In a pivotal session on September 16, 2025, the Bangladesh Bank, guided by Governor Dr. Ahsan H. Mansur, endorsed the integration pursuant to the Bank Resolution Ordinance 2025, with the goal of neutralizing potential threats and reinvigorating stakeholder assurance. As articulated by Arif Hossain Khan, a senior executive at the central bank, “This unification will eradicate enduring discrepancies and fortify trust among clients.”

Framework of the Unification Effort

Envisioned to extend across a minimum of 24 months, the unification strategy is calibrated to sustain everyday functions while imposing rigorous oversight. On September 28, 2025, the central bank designated oversight personnel to direct the evolution, deploying five-person squads to each institution, featuring central bank delegates such as Md. Shawkat Ullah Alam for Export Import Bank, Muhammad Badiul Alam Didar for Social Islami Bank, Md. Salahuddin for First Security Islami Bank, Mohammad Abul Hashem for Union Bank, and Maksudul Alam for Global Islami Bank. These squads partner with current leadership, preserving the positions of chief executives to uphold service levels. A dedicated coordination hub at Sena Kalyan Bhaban in Motijheel directs the amalgamation of client funds, advances, digital infrastructures, and workforce elements. Resources and obligations will shift to United Islami Bank, subject to obtaining a dedicated operating permit from the central bank. To achieve operational soundness, state contributions of Tk 20,200 crore will be augmented by Tk 15,000 crore from organizational reserves and client fund reallocations, aggregating Tk 35,200 crore to align with international capital adequacy requirements. Upon fruition, the institution will command close to 800 outlets and employ in excess of 16,000 individuals, outpacing peers in reach. Current governing panels will taper off methodically, and equity values, which escalated 20-30% during late September, indicate budding market sentiment. Legislative support from the Bank Companies Act 1991 and revised central bank directives guarantees openness, with conclusive ratification anticipated from the advisory body in October 2025.

Broader Financial Consequences: Prospects and Obstacles

This unification has the potential to redefine Bangladesh’s Tk 7 trillion Shariah finance arena, which expanded by 3.22% in client funds through June 2025 and is forecasted to advance at 10-12% per year until 2030. Armed with a Tk 2.20 lakh crore resource foundation, the lender could secure 15-20% of the sector’s volume, contesting the supremacy of Islami Bank Bangladesh Limited and exemplifying superior faith-based administration. Clients stand to gain markedly: holdings below Tk 5 lakh encounter no access limitations, whereas substantial ones might transition to ownership stakes, alleviating public fiscal loads. The model from Indonesia’s 2021 Shariah bank unification points to operational enhancements, though hurdles abound. Detractors point to the marginal involvement of the Bangladesh Securities and Exchange Commission, sparking debates on equity holder protections and sectoral dominance. An upfront allocation of Tk 10,000-12,000 crore might insufficiently address Tk 38,300 crore in capital shortfalls or Tk 74,500 crore in reserve deficiencies, potentially straining resources. Workforce apprehensions regarding compensation modifications, notwithstanding assurances against redundancies, complicate matters for the 17,785 personnel involved. Finance authority Dr. Salehuddin Ahmed observes, “Sustained administrative rigor is essential, lest the unified lender replicate the persistent shortfalls of government-held institutions.” Achievement here might propel analogous initiatives for conventional lenders, elevating the finance domain’s 3-4% stake in national output.

Strategic Recommendations for Participants in the Evolving Landscape

Individuals holding client funds should remain vigilant via central bank directives and spread their placements, capping involvement in any individual Shariah lender at 20% of their total assets. Market entrants may harness the equity upswing yet ought to scrutinize ownership dilutions, which averaged 23.8% prior to unification, and anticipate 15-25% yields assuming a 30% retrieval of overdue advances over the ensuing two years. Personnel are urged to collaborate through collective channels for competency enhancement initiatives, given the central bank’s pledge against terminations. Enterprises pursuing capital should investigate prospects with the augmented lender, especially in commerce facilitation, capitalizing on Export Import Bank’s established proficiency. Patrons of Shariah services can look forward to amplified adherence through forthcoming central bank protocols on examinations and moral education. Proactive measures encompass observing disclosures on the central bank’s portal and the Dhaka Stock Exchange, pressing for equitable frameworks through the Bangladesh Association of Banks, and pursuing trade-focused capital avenues. To facilitate adaptations, fund holders should confirm holding particulars, entrants should evaluate appraisal hazards, and personnel should seek vocational advancement to synchronize with the lender’s broadened scope.

Envisioning a Fortified Shariah Finance Horizon

With the advent of October 2025, the emergence of United Islami Bank signifies a cornerstone in Bangladesh’s drive toward monetary resilience and morally anchored banking. Through the synthesis of five challenged entities into a cohesive, enduring framework, this endeavor seeks to rejuvenate esteem in faith-congruent finance, propel enduring expansion, and delineate an international paradigm. Its efficacy rests on steadfast administration, candid implementation, and active involvement from all parties. For fund holders, market participants, and the encompassing economy, this audacious stride charts a course to a more equitable and thriving monetary domain, contingent on responsibility guiding the endeavor.