The government has announced its plan to pursue legal proceedings against those responsible for pushing five Shariah-based banks into financial distress, as authorities move forward with their merger to stabilise the sector.

The Financial Division of the Ministry of Finance sent a letter recently to the Financial Institutions Division (FID) of the same ministry regarding the matter.

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

The letter instructs the FID to identify those accountable for the banks' troubles, including owners, members of the board of directors, relevant officials and loan defaulters, and to take legal action against them for overall mismanagement.

Besides, the letter mandates the rapid recovery of the massive volume of non-performing loans (NPLs), investments, and assets of the five banks.

The Financial Division's letter requests the FID to formally ask the Bangladesh Bank (BB) to take the necessary legal measures against the responsible parties.

Arif Hossain Khan, Executive Director and Spokesperson for the Bangladesh Bank, told UNB that the central bank has already taken some initial steps and will take further necessary action upon receiving the formal request from the Financial Institutions Division.

The five banks are being merged to form a new entity, the 'Sammilito Islami Bank' (United Islami Bank), which will be the country's largest bank.

The new bank's paid-up capital will be Taka 35,000 crore, with the government contributing Tk 20,000 crore, and the remaining Tk 15,000 crore being converted from depositors' money into equity shares.

FID Secretary Nazma Mobarek has been selected as the Chairperson of this new bank.

The five banks hold deposits totalling Tk142,000 crore from 75 lakh depositors, against a combined loan portfolio of Tk 193,000 crore. More importantly, a staggering Tk147,000 crore, or 76 percent, of this portfolio is classified as non-performing.

The non-performing loan situation is particularly dire: Union Bank has the highest NPL rate at 98 percent, followed by First Security Islami Bank at 97 percent, Global Islami Bank at 95 percent, SIBL at 62.30 percent, and EXIM Bank at 48.20 percent.

Collectively, these banks operate 760 branches, 698 sub-branches, 511 agent banking outlets and 975 ATM booths nationwide.