Bank Resolution Act: Cabinet repeals controversial provision

In a major policy shift for financial sector governance, the Cabinet has officially approved the draft Bank Resolution (Amendment) Act, 2026, permanently repealing the controversial Provision 18(A).

The decision closes any legal avenues for ousted controlling shareholders, former directors, and distressed business conglomerates—most notably the S Alam Group—to reclaim ownership, assets, or management control of restructured or merged banking institutions.

Chaired at the Bangladesh Secretariat on Monday (August 10), the Cabinet granted both principle and final approval for the amendment, subject to final vetting by the Legislative and Parliamentary Affairs Division.

The move eliminates the "market-based rehabilitation" loop that previously allowed former owners of non-viable banks to regain corporate control by injecting new capital or settling outstanding liabilities.

Former controlling shareholders, board members, and affiliated groups responsible for bank distress are strictly prohibited from regaining ownership or managerial control under resolution frameworks.

This eliminates the conditional mechanism introduced in the Bank Resolution Ordinance 2025 (later enacted as the Bank Resolution Act 2026) that permitted former owners to re-acquire bank shares upon fulfilling capital adequacy conditions.

Blocks potential re-entry attempts by S. Alam Group into four merged Shariah-compliant lenders (First Security Islamic Bank, Social Islamic Bank, Union Bank, and Global Islamic Bank) and Nassa Group's former entity Exim Bank.

The Cabinet noted that no individual or corporate entity had formally applied or met the stringent capital re-injection criteria set under Provision 18(A) prior to its repeal.

To stabilize the newly unified Sammilito Islami Bank, the government has invested Tk20,000 crore out of a total paid-up capital base of Tk35,000 crore, with the remaining Tk15,000 crore structured as depositor equity conversion.

Policy analysis

Provision 18(A) was originally drafted to minimize state-funded bailout costs by allowing former or new private investors to absorb distressed bank liabilities, cover capital deficits, and restore liquidity.

However, economic analysts, the Newspaper Owners' Association of Bangladesh (Noab), and financial watchdogs raised severe concerns regarding governance risks and moral hazard.

Economists pointed out that defaulting owners could potentially leverage loans from other domestic or offshore entities to buy back their former banks, compounding systemic vulnerability across the financial network.

Allowing groups whose management led to capital depletion to regain control undermined regulatory accountability and public trust in banking reforms.

With Tk147,000 crore in defaulted loans (representing 79% of total advance portfolios across the five merged Islamic banks), central bank intervention required public recapitalization rather than reliance on legacy shareholders.

"Repealing Provision 18(A) establishes a clear boundary between bank recovery and owner accountability," noted financial sector watchdogs.

"Allowing former controlling groups to re-acquire banks after massive capital erosion would have sent the wrong signal to depositors. Restructuring must prioritize depositor security and professional management over legacy shareholder interests."

Central bank officials clarified that revoking Provision 18(A) does not halt ongoing legal actions against defaulting groups.

"BFIU asset-tracing, account freezes, and judicial recovery processes for siphoned funds remain active independent of corporate ownership restructuring. Removing this provision simply ensures that a resolved bank remains permanently isolated from former controlling interests."

Strategic roadmap

To complete the structural recovery of restructured and merged banking entities, regulators are prioritizing five key execution steps:

1. Appointing independent board members and professional executive suites to oversee operations at Combined Islamic Bank and other resolved institutions.
2. Tasking specialized recovery units to track and recover the Tk147,000 crore in non-performing loans associated with merged entities.
3. Finalizing the legal framework for converting Tk15,000 crore in eligible institutional deposits into equity shares within restructured entities.
4. Enforcing strict regulatory caps on single-borrower and group-exposure limits across all commercial banks to prevent concentration risks.
5. Coordinating with foreign legal teams to attach and liquidate foreign real estate and offshore accounts linked to primary defaulters.