Economists and banking experts have voiced serious concern over the government’s plan to merge five struggling Shariah-based banks into a single entity, United Islami Bank, arguing that the move will not address the underlying weaknesses in the banking sector.

Bangladesh Bank, however, remains confident that the merger will help restore depositors’ trust in the affected banks.

Speaking at a seminar on ‘Transition of the Banking Sector in Bangladesh: Challenges and the Way Forward’ organised by Dhaka University’s Department of Banking and Insurance on Tuesday, experts cautioned that merging banks alone is not a sustainable solution. Without tackling the sector’s root problems, they warned, the crisis could worsen once an elected government assumes office.

The central bank plans to merge First Security Islami Bank, Social Islami Bank, Global Islami Bank, EXIM Bank, and Union Bank into a single state-owned Islamic bank, with completion expected by November. These banks have long been plagued by high non-performing loans (NPLs), in some cases exceeding 90 percent, and have repeatedly relied on liquidity support from the central bank. Following several unsuccessful bailouts, Bangladesh Bank, with Finance Ministry approval, opted for the merger as a final solution.

“Bailing out private banks with public funds is unwise. Turning distressed banks into state-owned entities under the guise of restoring public confidence is misleading,” said former BIBM Director General Toufic Ahmad Choudhury. He warned that United Islami Bank could become “the biggest problem in the banking sector” if the underlying NPL issues are not addressed.

Dr Mahfuz Kabir, Research Director at BIISS, criticised the merger for overlooking shareholder interests. “Bangladesh Bank must clarify the impact on investors. Contingency plans are essential if the merger fails to resolve the sector’s problems,” he said.

Sayema Haque Bidisha, Dhaka University’s Professor of Economics and Pro-Vice Chancellor, however, said the situation has reached a point where there is no alternative to mergers. “We urgently need to form a Banking Commission, and the selection of bank boards must be made more stringent,” she suggested.

Despite the concerns, Bangladesh Bank remains optimistic about the merger outcome, as Adviser to the Governor Ahsan Ullah said, “This will create the best Islamic bank in the country’s history.”

He admitted that these banks had repeatedly received financial assistance from the central bank but failed to recover. “We can learn from past merger failures. This time, however, the merger will bring positive results,” he said.

Citing Janata Bank’s example, he said, “Although Janata Bank has around 70 percent NPLs, its situation has not deteriorated like these five banks. Once merged into a state-owned institution, depositors of these banks will be the ultimate beneficiaries.”

Bangladesh Bank Deputy Governor Kabir Ahmed attributed the crisis to a ‘moral collapse’ rather than just financial weakness. “What we are witnessing in the banking sector is not an economic or structural crisis — it’s an ethical one,” he said.

Expressing optimism, Kabir added that inflation is expected to ease further while reserves will increase. “With reserves at $32 billion, and likely to reach $34 billion soon, the economy is heading back toward a comfort zone,” he said.

The deputy governor reaffirmed that the central bank’s current priority is to restore macro-financial stability in the banking sector.

Professor Shahidul Zahid, Chairman of the Department of Banking and Insurance at Dhaka University, presided over the seminar.