BB fights on to curb family grip on banks

Submits draft amendment to the Bank Company Act

Bangladesh Bank has held its ground on curbing family control of private banks in a new reform proposal, resisting pressure from the country’s powerful bank owners.

A draft amendment to the Bank Company Act, sent by the central bank to the Financial Institutions Division last week, would allow no more than two members of one family on a bank’s board, down from three.

Directorships would be limited to six consecutive years, half the current 12-year limit, with a minimum wait of three years before reappointment.

Both measures were carried over from the reforms drafted under the interim government. On family control and tenure, the central bank under Governor Mostaqur Rahman has kept to the line of his predecessor Ahsan H Mansur, who began the reform drive under the interim administration.

Bangladesh Bank has, however, watered down the earlier proposal on independent directors, giving owners more control over board composition.

Boards could still have up to 20 directors, and the number of independent directors would rise from two to five. The draft prepared under Mansur would have cut boards to 15 seats, at least half of them held by independent directors.

The new draft also tightens the conditions for anyone seeking to become a bank director or managing director. 

Cabinet members, members of parliament, and local government representatives would be barred from serving as bank directors, a measure intended to limit political influence over lending decisions.

In a separate change, the central bank would be able to relax the current 10 percent cap on individual shareholdings for “strategic institutional investors” if it judged this beneficial for the sector. That could open the way for larger stakes by foreign or domestic institutions.

The proposals come as Bangladesh tries to clean up a banking system weighed down by bad debt. Non-performing loans stand at about 32.8 percent of the total, according to a September 15 report by Moody’s Ratings. 

Economists blame much of that on families and conglomerates that have used their banks to lend to their own businesses.

The Bangladesh Association of Banks, which represents owners, has lobbied hard against the reforms. 

It argues that limiting family representation on boards would disrupt established ownership arrangements, shorter tenures would deprive boards of experience, and independent-majority boards would curtail shareholders’ control.

At a September 20 meeting at the Financial Institutions Division, the owners sought a three-seat limit for their families and a nine-year tenure for directors. Minutes of the meeting suggest officials were receptive to those arguments.

A senior finance ministry official told The Daily Star yesterday that an inter-ministerial meeting would review the draft before it goes to the cabinet.

“The goal is to place and pass the bill in the upcoming parliamentary session,” the official said.

The cost of the banking crisis to the state has been rising. The interim government merged five failing private lenders into Sammilito Islami Bank, backed by Tk 20,000 crore from the budget. 

The sector would need Tk 60,000 crore a year in public funds for the next five to eight years to make up for money plundered from banks, Governor Mostaqur said on October 10.

Moody’s estimates the cost of recapitalising the system at about 10 percent of GDP.

Rules on bank governance have shifted with the political cycle. Following pressure from the owners, the tenure of bank directors was raised from six to nine years in 2018. The then government again pushed through a last-minute amendment in 2023, raising the tenure to 12 years. 

Opposition lawmakers walked out of parliament in protest, with one of them calling bank directors the “masterminds of bank looting”.