The Bank Resolution Ordinance, 2025: A Landmark Reform for Bangladesh’s Banking Stability

The Bank Resolution Ordinance, 2025 represents a pivotal advancement in Bangladesh’s financial regulatory landscape. Stability in the banking system remains one of the essential prerequisites for sustained economic expansion and a supportive macroeconomic environment in any country. In Bangladesh, the banking sector has long grappled with persistent challenges, including inadequate corporate governance practices, a massive volume of non-performing loans, insider lending, and capital shortfalls in certain institutions. These issues have collectively posed serious threats to overall financial stability.

Prior to 2025, Bangladesh lacked a dedicated, comprehensive framework to address banking distress in an orderly, timely, and efficient manner. This gap created vulnerabilities, as failing banks often required repeated bailouts, risking prolonged deterioration and broader contagion. The escalating number of non-viable banks threatened depositors’ confidence and the wider economy, while repeated interventions proved unsustainable. Bangladesh also faced international pressure from institutions such as the International Monetary Fund and the Financial Stability Board to align its banking laws with global best practices for resolution and crisis management.

These imperatives culminated in the promulgation of the Bank Resolution Ordinance, 2025, a landmark measure that introduces a structured, modern resolution regime for distressed banks. For the first time in Bangladesh, the Ordinance establishes a distinct and comprehensive bank resolution framework, extending beyond the limitations of the Bank Companies Act, 1991. It designates Bangladesh Bank as the primary Resolution Authority, empowering it with broad and decisive powers, not merely to regulate, but to intervene actively in order to aid troubled institutions.

The Ordinance enables Bangladesh Bank to temporarily take control of a bank, including through share transfers or the appointment of administrators. It also allows the authority to restrict or suspend certain shareholder rights, prioritizing depositor protection and systemic stability over private ownership interests when public welfare is at stake. Moreover, the law introduces innovative resolution tools previously unavailable under Bangladeshi law, such as bridge banks to preserve critical functions, forced mergers or acquisitions by healthier institutions, transfer of assets and liabilities through purchase-and-assumption transactions, temporary public ownership in exceptional cases, and bail-in mechanisms to allocate losses appropriately. These tools aim to ensure continuity of essential banking services while minimizing disruption.

The Ordinance outlines a clear, phased approach to handling failing banks. In the early intervention stage, Bangladesh Bank assesses viability based on criteria such as capital inadequacy, liquidity crises, poor management, or threats to financial stability. It may impose corrective measures, limit business activities, appoint new management, or transfer control. When recovery prospects diminish, Bangladesh Bank initiates formal resolution actions. These may include short-term takeovers, mergers into stronger entities, asset and liability transfers, or the establishment of a bridge bank to maintain operations. A dedicated Bank Resolution Department within Bangladesh Bank supports implementation, complemented by regulations issued in 2025 that detail operational guidelines, including provisions for Islamic banks to ensure Shariah compliance.

One of the Ordinance’s core strengths is its focus on safeguarding depositors. During resolution, essential banking services, such as payments, withdrawals, and settlements, continue uninterrupted, preventing bank runs and preserving public confidence. The framework also introduces valuation mechanisms, allowing shareholders or creditors to seek compensation only if they can demonstrate greater losses under resolution than in a hypothetical liquidation scenario. This no-creditor-worse-off principle aligns with international standards.

The Bank Resolution Ordinance, 2025 offers numerous long-term advantages for Bangladesh’s banking sector and economy. It enhances financial stability by enabling swift, orderly interventions, thereby reducing the risk of cascading failures and systemic contagion. It strengthens depositor security through continuous access to funds, minimizing panic withdrawals and protecting savings. It ends the bailout culture by shifting losses to shareholders, management, and responsible parties rather than taxpayers, thereby promoting accountability. It also improves governance, as bank owners and executives face real consequences for mismanagement, incentivizing stronger risk management and compliance. Overall, the Ordinance fosters a more disciplined, resilient banking environment aligned with global norms.

While widely regarded as a progressive step, the Ordinance has sparked legal and policy discussions. Critics highlight the extensive discretionary powers granted to Bangladesh Bank, raising concerns about potential overreach, erosion of shareholder rights, transparency, and constitutional safeguards. Certain provisions have faced judicial challenges, underscoring the need for balanced, evidence-based implementation. To mitigate risks, the Ordinance must be applied with caution, objectivity, and robust oversight mechanisms. Ongoing refinements through regulations, judicial interpretations, and alignment with complementary reforms, such as asset quality reviews and non-performing loan management, will be crucial.

In conclusion, the Bank Resolution Ordinance, 2025 marks a transformative era in Bangladesh’s financial regulatory history. By providing a modern, rule-based mechanism to handle failing banks efficiently, it strengthens the foundation for a stable, trustworthy banking system that supports sustainable economic growth. This legislative milestone reflects Bangladesh’s commitment to international best practices and positions the sector to better withstand future stresses. For clients and stakeholders, it signals greater protection, accountability, and long-term confidence in the financial system. As implementation progresses, staying informed about developments will be key to navigating this evolving landscape.

The Bill stipulates that in addition to the aforementioned guidelines, the data subject must provide free, explicit, and understandable consent, which may be revoked. The onus of demonstrating that the data subject’s permission was granted in compliance with legal requirements rests with the data controller. The acquisition of this permission would occur once the data controller delivered a written notification to the data subject. The Bill further states that the Government of Bangladesh will create regulations outlining the process for getting such consent from the individuals whose data it is about. The Bill additionally seeks to establish the data subject’s or an authorized person’s right to access their data and receive documents that are required. After paying the legally mandated charge, the data controller will be obliged to grant the data subject’s request for access to their data, provided that the request is legitimate.

References:

1. Government of Bangladesh. (2025). Bank Resolution Ordinance, 2025. Bangladesh Gazette (Extraordinary). Ministry of Law, Justice and Parliamentary Affairs, Dhaka.
2. Bangladesh Bank. (2025). Press releases and circulars on the bank resolution framework. Dhaka: Bangladesh Bank.
3. The Daily Star. (2025). Govt can now temporarily take over banks under new ordinance. The Daily Star, Dhaka.
4. The Business Standard. (2025). Government introduces Bank Resolution Ordinance 2025. The Business Standard, Dhaka.
5. bdnews24.com. (2025). Bangladesh gets legal framework for resolving weak banks. bdnews24.com, Dhaka.
6. The Financial Express. (2025). Shareholders of troubled banks may get compensation under new law. The Financial Express, Dhaka.
7. Prothom Alo (English). (2025). New bank resolution law: What it means for depositors and investors. Prothom Alo, Dhaka.
8. United News of Bangladesh (UNB). (2025). No scope to protect investors’ interest in merging weak banks: BB. UNB News, Dhaka.
9. Bank Companies Act, 1991.
10. Financial Stability Board. (2011). Key Attributes of Effective Resolution Regimes for Financial Institutions. Basel: FSB.
11. International Monetary Fund. (2024–2025). Bangladesh Financial Sector Stability Review. Washington, DC: IMF.

Find Here More Articles