Bangladesh Cabinet Okays Bank Resolution Amendment Act 2026: Stronger BB Powers, Faster Wind-Downs

Dhaka, August 10, 2026 — The Bangladesh Cabinet on Monday approved the Bank Resolution Act (Amendment) 2026, significantly strengthening Bangladesh Bank’s toolkit to deal with troubled banks and bringing the country’s resolution framework closer to international Basel III standards. The amendment, which now goes to Parliament for passage in the next session, is the most consequential banking-sector legal reform since the original Bank Resolution Act 2025 was passed in the wake of the political transition of August 2024.

🏛️ The Five Key Amendments

The amendment introduces five substantive changes to the existing Act:

• ⚖️ Establishment of a Bank Resolution Corporation (BRC): A new statutory body, hosted within Bangladesh Bank but with operational independence, will be the sole authority for resolving banks and NBFIs declared non-viable. The BRC will have a 7-member board chaired by a Deputy Governor of Bangladesh Bank, with members from the Finance Ministry, BSEC, Deposit Insurance Corporation and two independent experts. Annual budget: Tk 240 crore
• ⚖️ Bridge Bank mechanism: The BRC can establish a temporary “bridge bank” to take over the assets, deposits and critical functions of a failing bank while a permanent resolution is arranged. The bridge bank can operate for up to 24 months (extendable to 36), providing continuity of service to depositors and borrowers. Maximum capitalisation: Tk 5,000 crore per bridge bank, drawn from a new Resolution Fund
• ⚖️ Bail-in tool: The BRC can write down or convert to equity certain unsecured creditor claims (including subordinated debt and large deposits above Tk 5 crore) to absorb losses before resorting to public funds. This aligns with the EU Bank Recovery and Resolution Directive (BRRD) and the FSB Key Attributes of Effective Resolution Regimes
• ⚖️ Resolution Fund: A pooled fund, financed by an annual levy on all banks and NBFIs (initial rate: 0.04 per cent of risk-weighted assets), will provide the financial resources for resolution actions without drawing on taxpayer money. Target fund size: Tk 8,000 crore by 2030
• ⚖️ Removal of two-year cap on administrator tenure: The original Act limited temporary administrators appointed to troubled banks to a maximum two-year term. The amendment removes the cap, allowing administrators to serve until the resolution process is complete. (See related: BB removes two-year cap on bank administrators)

📊 The Scale of the Problem

The amendment comes at a critical moment for Bangladesh’s banking sector. According to Bangladesh Bank’s Financial Stability Report 2026 (provisional), the banking system currently faces:

• 📉 Non-performing loans (NPLs): Tk 4.62 lakh crore — 36.2 per cent of total outstanding loans, the highest in South Asia and among the highest globally
• 📉 11 troubled banks under BB intervention: 5 merged Islamic banks (Sammilito Islami Bank), ICB Islami Bank, and 9 others selected for Asset Quality Reviews by international audit firms (Ernst & Young, KPMG, Deloitte) from January 2027
• 📉 4 NBFIs declared non-viable: Aviva Finance, Fareast Finance, FAS Finance and International Leasing — under resolution since August 9
• 📉 Capital shortfall in the system: Estimated Tk 64,000 crore, with 14 banks failing to meet the minimum capital adequacy ratio of 10 per cent
• 📉 Governance deficit: 22 of the 61 scheduled banks have boards under restructuring; 8 have acting managing directors

Without a strengthened resolution framework, the central bank has struggled to deal with the scale of the crisis. The original Bank Resolution Act 2025 provided for administrator appointment and resolution planning, but lacked the financial resources, bridge bank mechanism and bail-in tool needed to handle a systemic banking crisis. The 2026 amendment closes those gaps.

💬 BB Governor’s Statement

Bangladesh Bank Governor Md. Mostaqur Rahman, briefing reporters after the Cabinet meeting, said: “The amendment gives us the full toolkit recommended by the Financial Stability Board and the Basel Committee. With the Resolution Corporation, the Resolution Fund and the bail-in tool, we can now resolve a failing bank without resorting to taxpayer money and without disrupting services to depositors. This is the foundation on which we will rebuild confidence in the banking sector.”

The Governor also confirmed that the central bank’s 18-month NPL action plan, targeting a reduction of the system-wide NPL ratio from 36 per cent to 18 per cent by December 2027, will be the first major test of the new framework. “The amendment is the legal foundation; the 18-month action plan is the operational programme; and the Asset Quality Reviews starting in January 2027 are the diagnostic tools,” he said. “Together, these three pieces will determine whether Bangladesh can clean up its banking sector in 24 months or whether we will repeat the Japanese lost decade.”

🌏 International Context

The amendment aligns Bangladesh with the FSB Key Attributes of Effective Resolution Regimes, adopted by G20 leaders in 2011 and now considered the international standard. The Key Attributes require every jurisdiction to have:

• ✅ A resolution authority with clear mandate and operational independence
• ✅ A resolution regime that can resolve any financial institution without systemic disruption
• ✅ Bail-in powers to absorb losses by shareholders and creditors
• ✅ Bridge institution powers to ensure continuity of critical functions
• ✅ A resolution funding arrangement, ex-ante financed by the industry

Bangladesh was previously one of only 12 FSB-member jurisdictions that did not have a fully compliant resolution regime. With the amendment, that number drops to 9. The IMF, World Bank and Asian Development Bank have all been consulted during the drafting process and have indicated support for the amendment. The IMF’s next review under the $4.7 billion Extended Credit Facility, scheduled for October 2026, is expected to formally acknowledge the reform.

🤝 Industry Response

The Association of Bankers, Bangladesh (ABB) welcomed the amendment but cautioned against indiscriminate use of the bail-in tool. “The bail-in tool is essential for systemic crises, but if applied prematurely or unpredictably, it can spook depositors and trigger the very runs it is designed to prevent,” said the ABB chairman, who is also the CEO of a leading private commercial bank. “We urge the central bank to publish clear guidance on the conditions under which bail-in will be used, and to provide for adequate depositor protection above the bail-in threshold.”

The Bangladesh Association of Banks (BAB), which represents bank owners, was more cautious. In a statement issued after the Cabinet approval, BAB said it supports the principle of a stronger resolution framework but is “concerned about the scope for arbitrary use of administrator powers, the cost of the new levy on already-stressed banks, and the absence of an appeal mechanism for resolution decisions.”

The Deposit Insurance Corporation (DIC), which insures deposits up to Tk 1 lakh per depositor per bank, has separately requested an increase in the insured limit to Tk 5 lakh — a demand the Finance Ministry has indicated it will consider in the upcoming budget.

📋 The Resolution Roadmap

Bangladesh Bank has indicated that, once the amendment is passed by Parliament (expected in September 2026), it will move quickly to operationalise the new framework:

• 🎯 September 2026: Parliament passes amendment; President signs into law
• 🎯 October 2026: Bank Resolution Corporation established; board appointed; staff seconded from Bangladesh Bank
• 🎯 November 2026: Resolution Fund levy collection begins; bridge bank legal entity incorporated
• 🎯 December 2026: BRC publishes first resolution plans for the 11 troubled banks
• 🎯 January 2027: International audit firms (EY, KPMG, Deloitte) begin Asset Quality Reviews of 11 banks
• 🎯 March 2027: First resolution actions under new framework, where AQR findings require intervention
• 🎯 December 2027: Target date for completing resolution of the 11 troubled banks — whether through merger, restructuring, bridge bank transfer or wind-down

🌏 The Strategic Stakes

For Bangladesh, the banking sector cleanup is not optional. With LDC graduation in November 2026 and the country’s graduation to middle-income status firmly on track, the cost of a weak banking system becomes more visible: foreign banks are reluctant to extend correspondent lines, FDI investors require financial-sector due diligence that flags systemic risk, and export credit insurers charge premiums proportional to banking-system stress. The Tk 4.62 lakh crore NPL overhang, if left unresolved, will continue to crowd out private-sector credit, depress investment, and constrain the GDP growth needed to absorb 2.1 million new labour market entrants annually.

The amendment is, in effect, Bangladesh’s bet that it can clean up the banking sector within 24 months — faster than most countries have managed comparable crises. Thailand took 7 years after the 1997 Asian financial crisis. Spain took 4 years for its 2012 banking restructuring. The United States, with the full force of FDIC and TARP, took 5 years for the 2008–2013 cycle. Bangladesh is attempting to compress the cycle into 24 months, with limited fiscal resources and a parallel LDC graduation transition. The amendment is a necessary, but not sufficient, condition for success.

✅ What Comes Next

The amendment will be tabled in Parliament in the next session, beginning August 25, 2026. Passage is expected by mid-September, given the cross-party consensus on banking-sector reform. Once enacted, the Bangladesh Bank will issue implementing regulations within 60 days, covering bail-in methodology, resolution fund levy structure, bridge bank operational rules, and depositor protection enhancements. The first resolution actions under the new framework are expected in Q1 2027.

For Bangladesh’s 61 scheduled banks, 34 NBFIs, 4.62 lakh crore in non-performing loans and 130 million depositors, the next 24 months will be a period of disruption, uncertainty and — if the framework works as designed — eventual recovery. The Cabinet’s approval of the amendment is the start of that journey. The destination is a banking sector that can finance the country’s next phase of growth without carrying the deadweight of the previous decade’s mismanagement.