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.
The draft also limits directorships to six consecutive years, half the current 12-year limit, with a minimum wait of three years before reappointment. 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.
TIGHTER RULES ON WHO CAN BE A DIRECTOR
The new draft 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.
The definition of "family" would be expanded to include in-laws, such as son-in-law, daughter-in-law, brother-in-law and sister-in-law. The draft also proposes removing the "wilful defaulter" classification, introduced in 2023, which obliges banks to list borrowers deemed deliberately unwilling to repay loans. 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.
INDEPENDENT DIRECTOR PROPOSAL IS SOFTENED
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.
OWNERS LOBBY AS BAD LOANS MOUNT
The Bangladesh Association of Banks, which represents owners, has lobbied hard against the reforms. At a 20 September meeting at the Financial Institutions Division, the owners sought a three-seat limit for their families and a nine-year tenure for directors. Following pressure from the owners, directors' tenure was raised from six to nine years in 2018, and the then government pushed through a last-minute amendment in 2023, raising it to 12 years.
Non-performing loans stand at about 32.8 percent of the total, according to a 15 September 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. Conglomerates such as S Alam gained control of multiple banks and withdrew thousands of crores of taka, much of which was allegedly laundered out of the country.
At the end of September, defaulted loans hit an all-time high of Tk 284,977 crore, or 16.9 percent of total disbursed loans, according to Bangladesh Bank data. The boards of directors of 11 banks have been dissolved and reconstituted. The interim government merged five failing private lenders into Sammilito Islami Bank, backed by Tk 20,000 crore from the budget. There are currently 61 banks.
Governor Mostaqur said on 10 October that 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. Moody's estimates the cost of recapitalising the system at about 10 percent of GDP.
ROUTE TO PARLIAMENT
A senior finance ministry official said 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 IMF placed a condition to introduce five laws, including the Bank Company Act, during the loan approval.
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