Bangladesh’s banking sector is facing one of the gravest challenges in its history. Several banks are now struggling with severe liquidity shortages, capital inadequacy, high levels of non-performing loans (NPLs), and continuous operational losses. These issues have eroded public trust to the point where many of these institutions are seeing negative deposit growth and, in some cases, an inability to honor customer cheques despite sufficient account balances—a situation almost unthinkable in modern banking.

This crisis did not happen overnight. It is the product of years of weak oversight, poor governance, and a series of financial scams—many carried out by unscrupulous directors and complicit senior management. The damage is now systemic. These banks are unable to mobilize new deposits and are under pressure from existing depositors demanding their funds. While a struggling business in another sector may wind down operations with limited impact, a failed bank can have devastating consequences, especially in an economy like Bangladesh’s, where people rely heavily on banking institutions to protect their savings and facilitate commerce.

In this context, mergers and acquisitions (M&A) emerge as not just a solution, but an urgent necessity. Though relatively new in Bangladesh’s banking history, M&A is a long-established and effective tool used worldwide to rescue failing banks, restore market confidence, and protect depositors.

Globally, bank M&A has been instrumental in creating resilient financial institutions. In the United States, more than 6,300 M&A transactions took place between 1980 and 1994, involving over $1.2 trillion in deals. Major institutions like JP Morgan Chase, Wells Fargo, Citigroup, and Bank of America were all formed through a series of strategic mergers. As recently as 2025, Pinnacle Financial Partners and Synovus Financial Corp. announced an $8.6 billion all-stock merger, expected to close in early 2026.

China, facing its own financial vulnerabilities, has rapidly consolidated small banks in recent years. In 2024 alone, 160 weak institutions were merged—four times more than in 2023—in an effort to reduce risk and stabilize the sector. President Xi Jinping has called for the creation of top-ranked investment banks to better support the real economy. India, too, has successfully reduced the number of public sector banks through large-scale mergers, resulting in stronger balance sheets, better risk management, and improved customer service. The State Bank of India merged with its associate banks in 2017, while Punjab National Bank, Union Bank of India, and Bank of Baroda all absorbed smaller peers in recent years.

In contrast, Bangladesh has very limited experience with structured M&As. After independence, several state-owned banks such as Sonali, Janata, and Agrani were formed by amalgamating branches of Pakistani banks through nationalization. More recently, troubled institutions like Farmers Bank were restructured and rebranded as Padma Bank, and BCCI's local operations transformed into Eastern Bank PLC. Of these, only Eastern Bank has emerged as a long-term success story.

Despite these precedents, the concept of proactive, policy-driven mergers in the banking sector remains unfamiliar. The recent initiative by Bangladesh Bank to merge five problem-ridden Islamic banks has sparked concern among depositors and stakeholders, who wonder whether M&A can truly protect their interests and restore stability. The answer, if guided by international best practices, is yes.

Mergers offer multiple advantages. They can strengthen capital positions, restore liquidity, eliminate corrupt or inefficient management, improve governance, and regain depositor confidence. They also allow for economies of scale, reduced operational duplication, better technology adoption, and stronger risk controls. More broadly, consolidation helps reduce unhealthy competition and creates a more sustainable banking environment.

But the success of M&A in Bangladesh hinges on getting the fundamentals right. First, regulatory oversight must be robust, transparent, and independent. Bangladesh Bank must lead the process with clear guidelines and enforceable timelines. Second, the country’s outdated banking laws—such as the Banking Companies Act, Bankruptcy Act, and Artharin Adalat Ain—must be updated to international standards, making it easier to resolve disputes, restructure debt, and ensure fair outcomes for creditors and depositors.

Governance will be critical. Merged institutions must be led by competent, accountable boards and professional management—not the same individuals responsible for past failures. Fair valuation and due diligence are essential to ensure transparency, particularly when it comes to absorbing non-performing assets. And above all, the interests of depositors, shareholders, and employees must be protected and clearly communicated throughout the process to avoid panic and resistance.

At its core, banking is built on trust. Once lost, it is difficult to regain. M&A—when implemented strategically—can be a powerful instrument to rebuild that trust. It signals that while failure is acknowledged, recovery is both possible and planned. For depositors, it provides a pathway to security. For the broader economy, it restores confidence in the financial system.

Bangladesh cannot afford to delay. The longer troubled banks are left to operate in a zombie-like state, the greater the risk of contagion across the financial sector. With rising inflation, growing debt obligations, and macroeconomic vulnerabilities, any further erosion of confidence in banks could trigger a wider crisis.

We must now act decisively. Mergers and acquisitions are not a bailout—they are a strategic reorganization of financial assets for long-term stability. They are a necessary, urgent step toward protecting depositors, restoring discipline, and building a more resilient banking system. The time for cosmetic fixes is over. Bangladesh’s banking sector must now choose bold reform over slow collapse.

The writer is a banker who can be reached at [email protected]