The collapse of banks and non-bank financial institutions is once again raising concerns over who should ultimately bear the financial consequences of mismanagement, irregularities and alleged embezzlement. While key decisions on lending, fund management and corporate affairs are generally taken by sponsors and directors, ordinary shareholders often have little or no role in those decisions. Yet when institutions become financially distressed, it is increasingly the small investors who face substantial losses.
For many investors, the damage begins well before a financial institution is formally declared non-functional. As confidence deteriorates and financial weaknesses become evident, share prices can fall sharply, eroding the value of their investments. Once trading is suspended, investors lose the ability to sell their holdings. If the institution subsequently enters a resolution or liquidation process, recovering any remaining value may become even more difficult.
The experience of five banks merged last year illustrates the scale of the problem. As part of the merger process, trading in the shares of First Security Islami Bank, Social Islami Bank, EXIM Bank, Global Islami Bank and Union Bank was suspended around a year ago. Their shares were later assigned a value of zero under the Bank Resolution Ordinance, 2025, after it was determined that their liabilities exceeded their assets.
The boards of the five banks were dissolved in November last year, after which Bangladesh Bank assumed responsibility for them. The Dhaka Stock Exchange and Chittagong Stock Exchange subsequently halted trading in their shares. Among the shareholders were sponsors and directors, but also thousands of ordinary investors who had acquired the shares through the capital market.
Former Bangladesh Bank governor Ahsan H Mansur had said the equity value of the five banks had become negative, leaving no recoverable value for shareholders. Their net asset value per share was reportedly negative by between Tk350 and Tk420. There were also plans not to allocate shares in the newly formed consolidated Islami Bank to shareholders of the former institutions.
That decision immediately raised questions about the fate of ordinary shareholders who had no direct involvement in the alleged irregularities or management decisions that contributed to the banks’ difficulties.
Following criticism over the decision to assign zero value to the shares, the issue of compensation for small investors entered government discussions. Former interim government Finance Adviser Salehuddin Ahmed said consideration was being given to returning part of the investments of ordinary shareholders. The Finance Ministry was expected to determine how such payments could be made after discussions with the relevant stakeholders.
Nearly a year later, however, the issue remains unresolved. Although compensation for affected shareholders has been discussed at different levels, there is still no clear indication of when or how investors might receive any money.
Three listed NBFIs face similar uncertainty
The issue has now resurfaced with three listed non-bank financial institutions.
On 9 August, Bangladesh Bank declared four non-bank financial institutions non-functional. They are Aviva Finance, Far East Finance and Investment, FAS Finance and Investment, and International Leasing and Financial Services. Of the four, all except Aviva Finance are listed on the stock market.
Bangladesh Bank dissolved the boards of the institutions and appointed its own officials as administrators. The move followed prolonged financial deterioration, concerns over irregularities and diminishing prospects of recovery.
From 10 August, trading in the shares of Far East Finance, FAS Finance and International Leasing was suspended indefinitely by the country’s two stock exchanges. Once again, ordinary investors were left facing uncertainty over whether any portion of their investments would eventually be recovered.
The financial problems of the three listed institutions are not new. Industry observers say Far East Finance, FAS Finance and International Leasing had struggled for years to repay depositors. Despite those difficulties, their share prices rose sharply at various points. Market rumours and speculative activity contributed to price movements, but investors did not receive meaningful returns over the long term.
The wider NBFI sector has been under pressure for years, with rising default loans, weak governance and allegations of financial irregularities among the concerns. In 2025, the default-loan ratio at nine NBFIs facing liquidation measures from Bangladesh Bank ranged from 75 per cent to 98 per cent. Far East Finance, FAS Finance and International Leasing were among those institutions.
There have also been reports alleging that PK Halder was involved in the misappropriation of at least Tk3,500 crore from several financial institutions, including International Leasing and FAS Finance. These allegations have added to scrutiny of lending practices, corporate governance and the oversight of the NBFI sector.
For ordinary shareholders, the central issue is straightforward: if they had no role in approving loans, transferring funds or making board-level decisions, why should they bear the same financial consequences as those responsible for such decisions?
Depositors receive priority
The protection of depositors has become a more immediate concern as authorities deal with distressed NBFIs. More than 12,000 depositors of six troubled NBFIs have reportedly been seeking the return of their money for a prolonged period. A portion of the deposits held by these institutions belongs to individual customers.
Bangladesh Bank has said depositors’ money is expected to be returned on a priority basis through a two-stage process or a special arrangement. The position of ordinary shareholders, however, is less certain.
Whether shareholders will recover anything depends largely on the value of the institutions’ assets and the amount remaining after liabilities are settled. Bangladesh Bank spokesperson Arif Hossain Khan said sponsors and directors would receive nothing after liquidation, while the position of ordinary investors would be clarified under the proposed scheme.
This creates a difficult distinction between depositors and shareholders. Depositors are creditors of a financial institution, whereas shareholders effectively stand behind creditors when assets are distributed during liquidation. Under the conventional process, an institution’s assets are first used to meet its liabilities. Only if money remains after those obligations have been settled can shareholders expect a distribution.
For institutions whose liabilities significantly exceed their recoverable assets, the prospect of anything remaining for shareholders is therefore limited.
The Bangladesh Securities and Exchange Commission has nevertheless argued that the interests of ordinary investors should be considered when the authorities formulate liquidation arrangements. A senior commission official said that if the government provides funds for any category of stakeholders when a listed financial institution is closed, the interests of ordinary shareholders should also be examined.
BSEC Executive Director and spokesperson Md Abul Kalam said the commission had previously written to Bangladesh Bank asking that the interests of ordinary investors be taken into account while preparing liquidation schemes for financial institutions. The commission also suggested that if any state allocation were made in relation to a listed institution, provision should be considered for its ordinary shareholders as well.
Debate over compensation
Former BSEC chairman Faruq Ahmed Siddiqi takes a more cautious position on compensation. He has argued that investors should assess a company’s financial health and prospects before committing their money and should avoid businesses that are clearly unsuitable for investment.
He also pointed to the difficulty of using public funds to compensate shareholders. If depositors of weak financial institutions are themselves struggling to recover their money, returning capital to shareholders becomes an even more complicated question. In his view, any decision to compensate ordinary shareholders would ultimately require a policy decision by the government. But using taxpayers’ money to cover losses suffered by a relatively small group of investors, he argued, raises questions about fairness.
Another view has emerged from Dhaka University accounting professor Md Al-Amin. He believes the issue should not be assessed solely through the conventional legal framework. Ordinary investors who lose money because a bank or financial institution fails do not necessarily bear personal responsibility for the management decisions that caused the failure.
He has called for regulators and other relevant authorities to move beyond correspondence and develop a practical mechanism to protect small investors where institutional failure results from serious mismanagement or financial misconduct.
At present, there is no clear and comprehensive framework specifically designed to compensate ordinary shareholders when a listed bank or financial institution collapses following alleged irregularities. Under existing liquidation principles, shareholders generally receive money only after creditors and other liabilities have been settled.
That creates a particularly difficult situation when an institution’s financial deterioration has been linked to years of alleged mismanagement, questionable lending or the diversion of funds. Ordinary investors typically have neither the authority nor access to determine where loans are granted, how funds are transferred or which decisions expose an institution to excessive risk.
The issue, therefore, goes beyond whether investors should accept the normal risks associated with the stock market. Investors do bear market risk, but the question becomes more complicated when losses are linked to alleged misconduct or failures in corporate governance over which ordinary shareholders had little control.
The cases involving the five merged banks and the three listed NBFIs have brought that distinction into sharper focus. Regulators now face the difficult task of balancing the rights of depositors, creditors, sponsors, directors and ordinary shareholders without creating incentives for reckless investment or placing an unfair burden on taxpayers.
For thousands of small investors, however, the immediate concern remains much simpler: if they had no say in the decisions that pushed these institutions into crisis, what protection, if any, will they receive when the consequences of those decisions are finally settled?
