While Islamic banking continues to expand despite governance challenges among certain lenders led by the controversial S Alam Group, Bangladesh Bank Governor Ahsan H Mansur recently indicated that the government may merge all existing Islamic banks to form two larger institutions.
He also announced plans to completely restructure the country’s Islamic banking sector, as most of the existing Islamic banks are currently facing difficulties.
Mansur outlined this plan after the interim government approved the Bank Resolution Ordinance, 2025, which aims to address the issues of weak banks through mergers or other corrective measures.
Shariah-based banking has been gaining popularity in Bangladesh, even surpassing conventional banking in some areas. However, the sector has faced an image crisis after S Alam Group gained control over several Islamic banks in quick succession.
In recent years, banks such as Standard Bank and Global Islami Bank have converted from conventional to Islamic banking, reflecting the growing appeal of Shariah-compliant financial services. Many conventional banks remain interested in fully converting to Islamic banks, even though they already offer Islamic banking services through dedicated branches or windows.
Currently, there are 10 full-fledged Islamic banks operating in Bangladesh: Islami Bank Bangladesh, Al-Arafah Islami Bank, Social Islami Bank, Standard Bank, EXIM Bank, First Security Islami Bank, Shahjalal Islami Bank, Union Bank, Global Islami Bank, and ICB Islamic Bank.
As of the end of last year, these 10 banks had total deposits of Tk 385,250 crore and total investments of Tk 486,500 crore.
Following the political changeover on August 5 last year, the Bangladesh Bank removed the family members of S Alam Group owner Mohammed Saiful Alam from the boards of six Islamic banks previously controlled by the Chattogram-based business tycoon.
Most of these six banks, which had suffered from massive irregularities, are now showing signs of financial recovery. Notably, Islami Bank Bangladesh and Social Islami Bank are making a rapid comeback from their liquidity crises.
Within the Islamic banking sector, Shahjalal Islami Bank remains financially sound, while Al-Arafah Islami Bank and Standard Bank are also in relatively stable condition, despite some ongoing governance issues.
However, the chief executives of at least three Islamic banks told The Daily Star that merging all 10 Islamic banks into just two large institutions would not be a realistic approach. They suggested that merging two or three banks based on their financial health might be feasible, but that the governor’s remarks have caused concern among depositors.
Mustafa K Mujeri, executive director of the Institute for Inclusive Finance and Development (InM) and former chief economist of Bangladesh Bank, emphasized that improving governance and strengthening financial health are more important than simply reducing the number of banks.
He noted that reducing the number of banks without first ensuring good governance would not solve the sector’s problems.
“The interim government and the central bank should focus on solving the existing problems in the banking sector and setting it on the right path. However, we have yet to see any visible improvements,” Mujeri said.
He added that the challenges in the Islamic banking sector stem primarily from governance issues, which would not be addressed simply by merging banks.
“Now the weak banks must be strengthened instead of just reducing their numbers, because simply reducing the number is not the solution,” he said.
Mohammed Nurul Amin, independent director and chairman of Global Islami Bank, echoed similar views. He said that weak Islamic banks must first be strengthened before any merger can bring about a positive outcome.
“First, these banks need to survive. Then, under the Bank Resolution Ordinance, the government can consider merging them,” he said.
Currently, most Islamic banks are undergoing asset quality reviews by global audit firms as part of the central bank’s reform agenda. Following these reviews, some banks may be merged, according to industry insiders.
