Sammilito Bank success signals early progress in banking reforms

Bangladesh's banking-sector reform drive has registered an early milestone, with Sammilito Islami Bank PLC beginning to repay depositors six months after the merger of five troubled Islamic banks, while maintaining regular operations and attracting fresh deposits.

The development comes as Bangladesh Bank and the government have taken a series of measures since April to tackle financially weak banks, strengthen depositor protection, improve supervision, recover defaulted loans and establish a formal framework for restructuring, merging or resolving troubled financial institutions.

From April to September 2026, the authorities have moved towards a structured bank-resolution system instead of relying primarily on emergency liquidity support for troubled institutions.

The latest cumulative figures from Sammilito Islami Bank show continued customer transactions and fresh deposit inflows.

Between September 1 and 15, a total of 154,289 customer applications involving Tk 6,342 crore were submitted, while the bank disbursed Tk 2,438 crore to 60,752 customers, according to the bank's mid-month update.

Managing Director and Chief Executive Officer of Sammilito Islami Bank PLC Md. Abedur Rahman Sikder said the bank received deposits and other receipts amounting to Tk 2,020 crore between September 7 and 15, indicating a gradual return of customer confidence in the newly formed institution.

He said normal scheme transactions and regular deposits and withdrawals also continued during the period, with payments totalling Tk 1,330 crore involving around 90,000 customers.

Some customers who received approval for withdrawals did not collect the funds immediately and informed the bank that they would withdraw them later, he added.

Between September 7 and 15, he said, total cash withdrawals from the bank stood at Tk 3,568 crore, including the Tk 2,438 crore paid against customer applications.

At the same time, 1,27,281 customers deposited Tk 762 crore in cash during the period, while 60,233 customers transferred Tk 1,258 crore through the Bangladesh Electronic Funds Transfer Network (BEFTN) and Real-Time Gross Settlement (RTGS) channels.

The bank also opened 24,965 new accounts during the period, with new account holders depositing Tk 303 crore.

Bangladesh Bank Executive Director and spokesperson Arif Hossain Khan said restoring depositor confidence was a key objective of the resolution process.

He said Bangladesh Bank had provided Tk 5,000 crore to Sammilito Islami Bank to support its liquidity position and enable the newly formed bank to continue normal banking operations.

Khan said the authorities were closely monitoring the bank's operations and the repayment process, while the gradual normalisation of transactions was important for rebuilding confidence among depositors and customers.

The bank was created through the merger of First Security Islami Bank, Social Islami Bank, Union Bank, Global Islami Bank and EXIM Bank, five institutions that had suffered severe financial and governance problems.

The latest deposit and account-opening figures provide an indication of continued customer engagement with the new institution.

Bankers say the ability of the bank to meet withdrawal requests while attracting fresh deposits is an important part of restoring confidence.

Economists, however, say the repayment process is only one stage of the broader rescue programme and that sustainable recovery will depend on recovering bad loans, rebuilding capital and improving governance.

During the six-month period, the authorities also strengthened the legal foundation for dealing with distressed banks.

The Bank Resolution Act, 2026, enacted in April, gave Bangladesh Bank a formal mechanism to restructure, merge or resolve financially non-viable institutions.

Parliament subsequently passed amendments to the law in September to further strengthen the resolution framework. The authorities also strengthened protection for depositors during the period.

Under the new Deposit Protection Act, 2026, the maximum protected deposit amount was raised from Tk one lakh to Tk two lakh, providing greater protection for small depositors in the event of a bank failure.

Another major initiative during the six months was the establishment of the Bank Restructuring and Resolution Fund, designed to provide resources for resolving troubled institutions and reduce dependence on repeated government-funded bailouts.

Bangladesh Bank also accelerated Asset Quality Reviews (AQRs) to determine the actual financial condition of weak institutions.

Comprehensive reviews of six Shariah-based financial institutions contributed to the decision to restructure five troubled Islamic banks through the formation of Sammilito Islami Bank PLC.

The capital structure of the new bank was also arranged as part of the resolution process.

Sammilito Islami Bank has Tk 35,000 crore in paid-up capital, including Tk 20,000 crore in government capital support, while the remaining Tk 15,000 crore is being raised through conversion of certain deposits into shares.

The reform drive during the past six months has extended beyond commercial banks to non-bank financial institutions.

Bangladesh Bank identified nine financially distressed NBFIs for winding-up proceedings.

These institutions held approximately Tk 15,370 crore in deposits, including Tk 3,525 crore belonging to individual depositors. The authorities have indicated around Tk 5,000 crore for repayment to NBFI depositors.

At the same time, Bangladesh Bank has intensified its efforts to determine the true scale of non-performing loans.

The banking sector's classified loans have been reported at around Tk 6,06,555 crore in June 2026, accounting for 32.78 percent of the total outstanding loans, highlighting the scale of the problem that the reform programme has to address.

Bankers say the authorities' decision to recognise the actual condition of troubled institutions is an important change from the previous approach.

They argue that restoring confidence requires banks to become financially transparent and capable of recovering loans rather than relying indefinitely on regulatory concessions or liquidity assistance.

Economists have similarly stressed that the banking-sector crisis is fundamentally a solvency and governance problem in many institutions, rather than merely a shortage of liquidity.

They have called for stronger action to recover defaulted loans, prevent politically influenced lending and hold those responsible for financial irregularities accountable.

Distinguished Fellow of the Centre for Policy Dialogue (CPD) Professor Mustafizur Rahman said the officially reported NPL figures during the Awami League government did not fully reflect the actual condition of the banking sector.

“When the Awami League came to power in 2008, NPL stood at around Tk 22,000 crore. By 2024, the officially reported figure had risen to nearly Tk 2 lakh crore. However, while preparing the White Paper, we found that the actual amount was around Tk 6.5 lakh crore,” he said.

During the six-month period, the authorities have also moved towards risk-based supervision and preparation for implementation of the Expected Credit Loss (ECL) framework under IFRS 9.

The objective is to identify credit risks earlier and ensure that banks make adequate provisions against potential losses.

The government has also ordered forensic audits of the five banks merged into Sammilito Islami Bank to identify loan irregularities, fund diversion and other financial misconduct. The new bank has reportedly initiated around 10,000 legal cases for recovery of defaulted loans.

The progress made between April and September, however, should not be interpreted as the complete resolution of the banking crisis. The sector continues to face a large stock of bad loans, capital shortages and governance weaknesses.

The significance of the past six months is that the authorities have begun putting in place the institutional tools needed to address those problems.

The cumulative figures up to September 15 on withdrawals, deposits, fund transfers and new account openings provide an early indication of how Sammilito Islami Bank's resolution process is functioning in practice.

The next phase will determine whether this approach can be sustained through loan recovery, recapitalisation, stronger governance and orderly resolution of other weak banks and NBFIs.

For the past six months, therefore, the banking-sector reform process has shifted towards structured resolution, with Sammilito Islami Bank serving as its first major practical test case.