Bangladesh Bank (BB) has dissolved the boards of directors of five financially distressed Shariah-based banks, effectively declaring them ‘ineffective’, as part of a move to merge them into a single state-owned Islamic bank.

The decision follows a proposal from Bangladesh Bank and a recommendation from the Financial Institutions Division (FID).

The banks involved are First Security Islami Bank PLC, Global Islami Bank PLC, Union Bank PLC, EXIM Bank PLC and Social Islami Bank PLC (SIBL).

Separate letters were issued to the banks on Wednesday, notifying them that their Boards’ activities have been suspended with immediate effect. The banks will now operate under the Bank Resolution Ordinance.

Bangladesh Bank officials said the consolidation will create a new state-owned Islamic bank, to be named ‘Shommilito Islami Bank’ (Combined Islami Bank). The dissolution of the boards marks the first step in this forced merger process.

The Governor of Bangladesh Bank has summoned the Chairmen and Managing Directors of the affected banks for an emergency meeting on Wednesday, where they will be formally briefed on the decision. Company Secretaries have already received the relevant communications.

The move comes after the Council of Advisers approved on October 9 the formation of a government-owned Islamic bank through the consolidation of these struggling institutions, following Bangladesh Bank’s proposal and FID’s recommendation.

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Bangladesh Bank data shows that the financial health of the banks has been deteriorating for over a year.

They have reached near insolvency due to severe liquidity crises, high classified loans, provision shortfalls, and capital deficits.

Despite repeated liquidity injections, their conditions did not improve. Their stock market values have plummeted, with the Net Asset Value (NAV) of each bank currently in negative territory.