Bangladesh Bank Plans Sweeping State Bank Merger

Bangladesh Bank has unveiled an ambitious plan to consolidate the country’s state-owned banking sector, proposing to merge nine public banks into just two large institutions. The initiative, announced by Governor Ahsan H Mansur at a public discussion hosted by Jagannath University in Dhaka on Tuesday, is being described as the most far-reaching overhaul of state banking in decades and a cornerstone of a broader financial-sector reform agenda. According to the governor, the primary objectives of consolidation are to strengthen corporate governance, restore financial discipline, and address chronic structural weaknesses that have accumulated over many years. State-owned banks, he noted, have been undermined by weak management practices, inadequate supervision, and persistent political interference. These factors have contributed to elevated non-performing loans, repeated governance failures, and an erosion of public confidence. Bangladesh currently has 61 scheduled banks, a figure the central bank considers excessive for an economy of its size. Governor Mansur argued that effective supervision becomes increasingly difficult as the number of institutions rises, particularly when many of them are under-capitalised or poorly governed. In his assessment, a system built around 10 to 15 well-capitalised, professionally managed banks would be far better equipped to ensure financial stability, manage risk, and support sustainable economic growth. Drawing on international experience, the governor pointed to India’s consolidation of state-owned banks over the past decade, despite having an economy many times larger than Bangladesh’s. He also cited Singapore, where a single leading bank’s balance sheet is comparable in size to Bangladesh’s entire banking sector. These examples, he argued, demonstrate that fewer but stronger banks are easier to regulate and more resilient during periods of stress. At present, Bangladesh’s nine state-owned banks fall into three broad categories: commercial, development, and specialised institutions. Under the proposed framework, these banks would be reorganised into two large banking groups, although the precise structure and timelines have yet to be finalised. Category Included Banks Commercial Sonali Bank, Agrani Bank, Rupali Bank, Janata Bank Development BASIC Bank, Bangladesh Development Bank Specialised Bangladesh Krishi Bank, Rajshahi Krishi Unnayan Bank, Probashi Kallyan Bank The consolidation plan forms part of a wider reform drive by Bangladesh Bank. In recent months, the regulator has overseen the merger of several weak private Islamic banks and initiated liquidation proceedings against a number of non-bank financial institutions. The governor stated that decades of mismanagement, cronyism, and political influence have inflicted losses estimated at nearly Tk 300,000 crore on the banking sector, with concerns that a substantial portion of these funds may have been siphoned abroad. Many economists have welcomed the proposal as both timely and necessary. They argue that state-owned banks have long suffered from bureaucratic inertia and a lack of accountability, with repeated government recapitalisations failing to deliver lasting improvement. Official data indicate that between 2009 and 2024 the government injected more than Tk 25,000 crore into these banks, yet default rates remain alarmingly high. Against this backdrop, consolidation is increasingly seen as a critical step towards restoring stability, protecting depositors, and rebuilding public trust in the banking system.