THE disclosure that five failed Islamic banks held collateral worth only a quarter of their outstanding loans once again exposes the alarming depth of malpractice that has for long plagued the banking sector. According to the Bangladesh Bank, the banks possessed collateral worth only Tk 45,000 crore against loans amounting to Tk 1,92,000 crore, while defaulted loans alone stood at Tk 1,69,000 crore. The figures reveal a systematic collapse of governance, accountability and regulatory oversight. The crisis surrounding Social Islami Bank, First Security Islami Bank, Union Bank, Global Islami Bank and EXIM Bank was the inevitable consequence of politically connected lending, weak supervision and a deliberate disregard for banking norms. The dominance of the controversial S Alam Group over four of these banks further demonstrates how concentrated political and corporate influence can hollow out financial institutions from within. The group took massive loans from these banks. The huge mismatch between deposits and loans in these banks — Tk 1,92,000 crore in loans against deposits of around Tk 1,30,000 crore — meant that the banks depended heavily on borrowing from other banks and the central bank. Such practices endangered not only depositors but also the wider financial system.
The disbursement of loans without adequate security or proper valuation suggests institutional complicity at multiple levels. All this has now translated into a burden on depositors, the government and the central bank. The government and the central bank have already injected tens of thousands of crores of taxpayer money to prevent a total collapse. Bangladesh Bank has injected more than Tk 47,000 crore into these banks, while the government provided another Tk 20,000 crore for their resolution. Meanwhile, after the enactment of the Deposit Protection Act, 2026, the central bank began compensating depositors from its Tk 12,000 crore deposit insurance fund in January and, so far, Tk 3,887 crore has been repaid to 8,22,000 depositors. These measures, however, cannot restore public confidence unless accompanied by comprehensive reforms and strict disciplinary action. The banking sector cannot remain trapped in a cycle in which politically influential borrowers siphon off funds, regulators fail to intervene in time and taxpayers are later forced to rescue failed institutions. What is also worrying is that, when the present crisis should have served as a decisive turning point, the latest decision by the central bank to relax single-borrower and large-loan exposure limits appears to be a retreat from prudence.
The authorities must now undertake an uncompromising investigation into all irregular loans, identify those responsible for fraudulent disbursements and recover assets through legal and financial means. Officials who neglected oversight duties or facilitated violations must also face accountability. The central bank must strengthen its inspection mechanisms, enforce stricter collateral requirements and review its recent decision to relax single-borrower and large-loan exposure limits.
