Written by The Banking Post
The government’s move to return five merged Islamic banks to their former owners is facing strong resistance from key development partners, raising concerns over ongoing financial-sector reforms.
Officials say the recently passed Bank Resolution Act 2026—amending the earlier 2025 ordinance—has introduced a provision allowing previous shareholders to reclaim control of the troubled banks on relatively easy terms. Under the new rule, owners can regain control by paying just 7.5 per cent of the government’s injected funds upfront, with the remaining 92.5 per cent payable over two years at a 10 per cent simple interest.
The amendment has triggered criticism both at home and abroad. Economists and policy experts have questioned the move, while development partners—including the IMF and the World Bank—have expressed dissatisfaction, citing concerns over reform reversals and governance risks.
Officials familiar with the matter say the earlier bank merger initiative was undertaken under guidance from global lenders as part of broader financial-sector reforms. The latest policy shift, however, appears to have strained those relationships.
“There is clear unease among development partners over the direction of reforms,” said a senior finance official, adding that the amendment has particularly “angered” key lenders.
The impact is already being felt. The IMF has reportedly delayed the release of two tranches—worth $1.3 billion—under its $5.5 billion loan programme. Meanwhile, the World Bank has attached conditions to a proposed $500 million budget-support loan, including the repeal of the clause that enables restoration of former ownership.
The lender has also called for broader reforms, such as accelerating the separation of tax policy and administration, strengthening revenue mobilisation, simplifying VAT structure, and reducing corporate tax rates.
Officials say the government is under pressure to balance urgent financing needs with reform commitments. “We are in severe need of budget support, but partners want credible reform actions in return,” another official noted.
The move has also drawn sharp criticism from anti-corruption watchdogs, which warned that reinstating previous owners could undermine accountability and risk repeating past financial irregularities.
With external financing at stake and reform credibility under scrutiny, the government now faces a critical decision on whether to revisit the controversial provision or push ahead with its current stance.
