The unanimous passage of the Bank Resolution Bill 2026 in Bangladesh's Jatiya Sangsad comes at a critical juncture for the country's financial sector. Mounting stress in several weak banks reflected in high non-performing loans (NPLs), governance lapses, and capital shortfalls has eroded depositor confidence and constrained credit flows. The new law, which enables timely restructuring, resolution, and consolidation of troubled banks, is therefore both timely and necessary. Global experience across advanced and emerging economies shows that orderly consolidation of weak institutions is often the least costly path to restoring stability.
Bangladesh's banking system has expanded rapidly over the past two decades, supporting trade, industry, and infrastructure. However, structural weaknesses have persisted. Elevated NPL ratios, weak internal controls, and instances of connected lending have impaired asset quality. Capital adequacy in some institutions remains fragile, while liquidity pressures have surfaced intermittently. In such a setting, allowing weak banks to continue operating without decisive intervention risks contagion where loss of confidence spreads beyond individual institutions to the broader system.
The Bank Resolution Bill 2026 addresses this risk by providing a legal framework for early intervention. It empowers regulators to assess viability, initiate resolution plans, and facilitate mergers or acquisitions where necessary. The objective is clear: protect depositors, maintain continuity of critical banking services, and minimize systemic disruption. Importantly, the framework also allows for burden-sharing where shareholders and, where appropriate, certain creditors absorb losses thereby reducing the fiscal cost of resolution.
International precedents underscore the importance of such a framework. In Europe, the aftermath of the global financial crisis led to extensive bank restructuring and consolidation. Spain's savings banks (cajas), heavily exposed to the real estate downturn, were merged under a state-supported restructuring programme. Though the transition was complex, consolidation reduced fragmentation and strengthened capital positions. Greece followed a similar path during the sovereign debt crisis, with weaker banks absorbed into stronger institutions, supported by European mechanisms. These measures were essential to stabilizing the banking system amid prolonged economic stress.
The United States offers a well-established model of bank resolution. During the 2008 crisis, regulators facilitated the acquisition of failing institutions by stronger banks to prevent systemic collapse. Beyond crisis episodes, the Federal Deposit Insurance Corporation (FDIC) routinely resolves failing banks through purchase-and-assumption transactions, ensuring that depositors retain access to their funds while viable operations continue under new ownership. The key lesson is the value of speed and clarity in resolution actions.
Even in highly developed systems, consolidation has been necessary. Switzerland's emergency-facilitated acquisition of Credit Suisse by UBS in 2023 illustrated how swiftly authorities may need to act to preserve confidence. While exceptional in scale, the episode reaffirmed that no system is immune to instability and that decisive intervention can prevent broader disruption.
In Asia, consolidation has been a central pillar of post-crisis reform. Following the 1997 Asian Financial Crisis, countries such as South Korea and Malaysia reduced the number of banks through mergers and closures, creating fewer but stronger institutions with improved oversight. India has also pursued consolidation among public sector banks to enhance scale, capital strength, and operational efficiency. These measures have aimed to improve resilience while supporting credit growth.
Australia's experience, though different in context, also highlights the role of consolidation in maintaining stability. A relatively concentrated banking system has enabled stronger institutions to absorb smaller or weaker ones when needed, preserving depositor confidence and service continuity.
In Africa, Nigeria's mid-2000s banking reforms required a sharp increase in minimum capital, triggering a wave of mergers and acquisitions that significantly reduced the number of banks while strengthening the sector. Kenya has also managed bank failures through resolution and acquisition processes, protecting depositors and containing systemic risks.
Across these diverse experiences, a consistent message emerges: weak banks should not be allowed to persist indefinitely. Delayed action typically increases resolution costs, deepens losses, and undermines public trust. By contrast, timely consolidation can restore confidence, improve governance, and enhance efficiency through economies of scale.
For Bangladesh, the benefits of consolidation are multifaceted. First, it can strengthen capital bases by combining balance sheets and reducing duplication of weak assets. Second, it can improve governance by placing troubled institutions under stronger management and oversight. Third, it can enhance operational efficiency, reducing costs and enabling better service delivery. Finally, it can restore depositor confidence an essential condition for financial intermediation.
However, consolidation must be carefully managed. Not all mergers automatically create stronger institutions. Due diligence is critical to ensure that viable banks are not unduly burdened by absorbing excessive bad assets. Transparent valuation of assets and liabilities is essential, as is clarity on loss allocation. Regulatory independence must be safeguarded to prevent undue influence in selecting merger partners or structuring transactions.
Depositor protection should remain at the centre of the resolution process. Clear communication from authorities can help prevent panic and reassure the public that their savings are secure. At the same time, accountability mechanisms should ensure that those responsible for mismanagement are held to account, reinforcing market discipline.
The new law should also be complemented by broader reforms. Strengthening supervision, improving loan classification and provisioning standards, and enhancing corporate governance are necessary to prevent the recurrence of vulnerabilities. Legal reforms to expedite loan recovery and reduce default culture will further support the health of the banking system.
It is also important to recognize potential challenges. Consolidation may lead to short-term disruptions, including integration risks and workforce adjustments. Larger institutions may become systemically important, requiring enhanced oversight to mitigate "too-big-to-fail" risks. These concerns, however, can be managed through prudent regulation and phased implementation.
The passage of the Bank Resolution Bill 2026 signals a shift toward proactive crisis management in Bangladesh's banking sector. It aligns the country with international best practices and demonstrates a commitment to safeguarding financial stability. While the success of the initiative will depend on effective implementation, the direction is clear and appropriate.
In the current global environment marked by financial volatility and interconnected risks resilient banking systems are indispensable. Bangladesh's decision to adopt a structured resolution and consolidation framework is therefore not only prudent but necessary. By addressing weaknesses decisively and transparently, the country can restore confidence, strengthen its financial institutions, and support sustainable economic growth.
In sum, consolidation is not an end in itself but a means to an end: a stable, efficient, and trustworthy banking system. The Bank Resolution Bill provides the tools; it is now incumbent upon policymakers and regulators to use them judiciously and effectively.
Shahidul Alam Swapan is a Switzerland-based private banking financial crime specialist. shahidul.alam@bluewin.ch
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