Bangladesh’s newly enacted Bank Resolution Act of 2026 has been framed as a morality play about whether disgraced owners, most notably S Alam, will be allowed back into banks they allegedly helped wreck. That framing is politically effective. It is also incomplete.
The Act is better understood as an attempt to unwind a prior policy choice that shifted private losses onto the public balance sheet at scale and now looks fiscally and monetarily untenable.
That earlier policy was the 2025 resolution ordinance under erstwhile Governor Ahsan H Mansur at Bangladesh Bank. Five distressed Islamic banks, First Security Islami, Social Islami, Global Islami, Union and EXIM, were merged into a single state-owned institution. The central bank removed sponsor directors, contained deposit outflows, and reduced immediate contagion risk. The intervention was presented as a cleanup. In substance, it consolidated insolvency.
Combined deposits stood at roughly Tk1.4tn, while loans were about Tk1.9tn, with the majority classified as non-performing or of dubious quality. Several analyses and press reports indicate that capital had already eroded, leaving the institutions with effectively negative net worth. A merger of such entities aggregates losses. The ordinance therefore shifted those losses from shareholders to the state.
That shift has proved expensive. Government disclosures and reporting suggest that more than Tk80,000 crore has already been injected or committed, with estimates of total support rising towards or beyond Tk1 lakh crore if the current framework is sustained. The structure of that support matters.
These expanded guarantees, funded by public resources, have stabilised the system in the short run. They have also socialised losses that would normally fall on equity holders, subordinated creditors, and, beyond insured limits, depositors. The consequence is a persistent fiscal and monetary burden.
Continuing the same approach implies further injections on the order of tens of thousands of crores, either through taxation or through money creation. The former compresses fiscal space; the latter raises prices. Neither is costless, and the distributional impact is skewed towards households least able to absorb it.
The new Act attempts to alter that trajectory. As reported in recent coverage, amendments, particularly Section 18(a), create a legal pathway for former shareholders or other approved investors to reclaim distressed banks under resolution.
In practical terms, a reacquisition under Section 18(a) would follow a defined sequence. An interested party, typically a former sponsor group or a consortium, would first seek approval from the resolution authority, disclosing funding sources and any related party exposures. Approval would trigger an upfront payment of roughly 7.5% of the public funds already injected.
A binding restructuring plan would then follow. It would include fresh equity to restore minimum capital adequacy, a defined schedule to repay remaining state support, and a strategy to resolve non-performing loans, including those linked to the sponsors themselves.
Governance conditions would ordinarily include limits on related party lending, reconstituted boards with independent directors, and supervisory oversight. In principle, failure at any stage would invite penalties or loss of control. In practice, the credibility of this sequence rests less on its design than on whether each step is enforced without dilution.
Critics interpret this as a reopening of the door to controversial previous owners like S Alam. That risk is explicit in the text and has been highlighted in reporting that the law change “paves the way” for such returns. Concerns go beyond optics.
A substantive fear runs through the debate: that allowing previous controllers back could dilute reforms and entrench weak governance in a system where regulatory enforcement has historically been uneven.
Still, the alternative carries its own costs. It continues the government bailout of deeply impaired balance sheets. Liquidation would impose losses beyond insured limits and risk destabilising depositor confidence, which remains fragile. Recent reporting points to persistent unease among depositors and a lack of trust in several institutions.
A market sale to new investors runs into fundamentals. Banks with negative net asset value and uncertain recovery prospects attract little interest without explicit or implicit state guarantees. Such guarantees would keep the liability with the public sector.
The feasible policy space is therefore narrow. The Act occupies one point within it: shifting liabilities back to private actors, including those who previously owned or controlled the institutions, in exchange for repayment and recapitalisation commitments. The economic rationale is straightforward. If the state cannot continue to absorb losses indefinitely, those losses must be reassigned.
The difficulty lies in incentives. The 2025 ordinance weakened market discipline by extending protection beyond statutory limits and financing it with public resources. If depositors expect full protection irrespective of bank behaviour, risk pricing deteriorates. If owners expect losses to be socialised, lending standards follow.
The current Act attempts to reintroduce private liability by conditioning ownership on repayment and capital injection. Whether that liability is real depends on enforcement. That is the binding uncertainty.
Bangladesh’s regulatory history does not offer strong evidence of consistent enforcement against politically connected actors. Without credible supervision, conditions attached to reacquisition risk becoming negotiable rather than binding. The Act’s effectiveness therefore hinges on the state’s willingness to enforce it, more than on the provisions themselves.
Past episodes illustrate the pattern. The Hall-Mark Group loan scam at Sonali Bank involved the fraudulent disbursement of thousands of crores through collusion between bank officials and politically connected borrowers. Despite investigations and arrests, recovery has been limited and proceedings have dragged on.
The BASIC Bank loan scandal followed a similar shape. Large volumes of credit went to weak or fictitious firms under politically influenced management. Probes identified irregularities but yielded only modest recovery relative to losses.
In both cases, the rules existed. Enforcement did not. The implication for current policy is direct: if enforcement could not impose credible losses or accountability then, there is reason to question whether conditions attached to reacquisition will remain binding when they conflict with political or financial interests.
The political context compounds the constraint. The Bangladesh Nationalist Party, which backs the legislation, faces electoral incentives. It has limited appetite for imposing visible losses on depositors and limited fiscal space for indefinite bailouts. The new Act reduces contingent public liabilities on paper by transferring them to private balance sheets. Whether that transfer holds in practice will depend on implementation.
Another complication runs alongside. Some potential returnees are also among the largest borrowers from the same banks. Reacquiring ownership would require them to regularise or restructure those exposures and repay state support. That alignment could aid recovery of bad loans. It also reduces the attractiveness of return unless terms are softened or enforcement weakens.
The current debate treats the Act as a question of propriety: who should be allowed back into the system. The operative constraint is arithmetic: who bears losses that have already been incurred. The 2025 ordinance answered that question by placing the burden on the public. The 2026 Act attempts, imperfectly, to move it back to private actors. Neither option is clean. One risks inflation and fiscal strain; the other risks weak enforcement and reputational damage.
A coherent framework would set explicit limits on public support, impose losses in a defined order, and separate impaired assets from viable operations. Bangladesh has extended support, blurred loss hierarchies, and delayed asset separation. The result is a policy oscillation between bailout and reprivatisation, with each step constrained by the previous one.
The controversy will persist because it conflates accountability with allocation. The former requires investigation and sanction for past conduct. The latter requires assigning present losses across taxpayers, depositors, and investors.
That assignment cannot be made painless. Without a credible mechanism to absorb losses, they will continue to surface as fiscal pressure or higher prices. The new Act does not resolve that constraint. It reflects it.