The banking sector of Bangladesh today stands at a critical turning point. While there are faint signs of recovery, the crisis of confidence created by staggering volumes of non-performing loans (NPLs) and years of corporate governance failures has left the entire financial system weak and vulnerable. Over the past decade, several banks were established not for public interest or financial innovation but rather to serve the private ambitions of a particular group of industrialists. These banks, riddled with mismanagement, have now become a burden on the financial system. Under the previous government, there were discussions and even threats of forcing mergers between troubled banks. That rhetoric has only grown louder under the current interim government, which sees mergers, liquidity injections, and government acquisition of majority stakes as the only viable solution to save failing banks.
On paper, this approach appears pragmatic. Merging weaker institutions, recapitalizing them with fresh funds, and placing them under temporary state control with the eventual goal of selling shares back to investors once stability is restored seems like a sound plan. The enactment of the Bank Resolution Ordinance 2025 has already given the central bank sweeping powers to intervene and restructure banks. The government hopes this will not only protect depositor interests but also repair the culture of weak corporate governance, restore public confidence, and establish a more resilient financial sector.
Yet the reality may not be as straightforward. At its heart, this is a gamble with extremely high stakes. The concern is whether merging troubled institutions will truly create stability, or whether it will simply combine weakness with weakness, producing a larger, even more fragile bank that carries the risk of future collapse. The danger is that a poorly managed merger, far from solving the crisis, could spark further panic among depositors. A widespread loss of confidence could trigger bank runs and ultimately result in a national-level financial meltdown.
It is important to remember that the problems afflicting these institutions-political interference, corruption, the influence of powerful business groups, and chronic poor governance-cannot be solved by mergers alone. Unless these root causes are directly addressed, any newly merged bank will inherit the same vulnerabilities that plagued its predecessors. While the interim government has outlined a multi-pronged strategy that includes international forensic audits to evaluate the true financial health of troubled institutions, such measures will only work if accompanied by strict accountability and insulation from vested interests.
The rationale behind this gamble is clear. Left unchecked, failing private banks heavily burdened with NPLs could trigger systemic collapse. In today's interconnected global economy, a banking failure does not remain confined to one institution or one country. A single collapse reverberates across markets, undermines international confidence, and damages the reputation of the nation's financial system. To avert this worst-case scenario, the government argues that intervention through mergers is essential. It has already injected liquidity into the system several times, often through money printing, which has worsened inflationary pressures. The challenge lies in balancing immediate stabilization with long-term risks.
History offers sobering lessons. The merger of Bangladesh Shilpa Bank and Bangladesh Shilpa Rin Sangstha into Bangladesh Development Bank Limited in 2009 was intended to strengthen the development finance sector. Yet more than a decade later, the institution remained weak, struggling to manage NPLs and operational inefficiencies. Reports now suggest that it may be merged into state-owned Sonali Bank, raising questions about whether the original merger achieved any meaningful outcome. This precedent illustrates that mergers alone, without governance reform, often fail to produce lasting results.
Bangladesh is thus at a crossroads. If the current merger strategy is carefully executed with transparency, accountability, and strong institutional independence, it could stabilize the sector and protect the wider economy from collapse. But if it is reduced to a cosmetic restructuring that papers over the same old problems, it risks deepening the crisis and creating a larger disaster in the future. The stakes could not be higher. For the government, the banking system, and the citizens whose deposits are at risk, the outcome of this gamble will determine whether Bangladesh secures financial stability or slides toward systemic breakdown.
The writer is Barrister (Lincoln's Inn), LLM Corporate Law, NTU PGDL, UWE Bristol, LLB, BPP University
