Banking Corporation Proposal: Removal of Family Director Limit, Suggests 9-Year Term Extension

The Bangladesh Association of Banks (BAB) has submitted recommendations for the 2025 amendment to the Bank Company Act, aiming to address the issue of family control in the banking sector. This concern has been a central topic in Bangladesh, with many private banks being controlled by a few families, leading to conflicts of interest, mismanagement, corruption, and difficulties in regulation oversight.

Key Proposals by BAB and International Bodies

The World Bank and the International Monetary Fund (IMF) have made several recommendations in their regular Country Reports and technical studies to strengthen governance in the banking sector.

Enhancing Governance

Transparency and Accountability: Full disclosure of the ownership structures and business relationships of banks, revealing the actual influencers (beneficial ownership).
Reduction of Family Involvement: Limiting the shares a family or closely-knit network can hold in a bank to reduce the concentration of power.

Strict Regulation

Licensing and Regulation Policy: Stricter criteria for issuing bank licenses, focusing on the financial strength, professionalism, and integrity of the applicants.
Board and Leadership Structures: Recruitment of independent board members and professional bank managers who are not from the controlling families.
Reduction of Conflicts of Interest: Clear separation between the interests of shareholders and bank management.

Oversight and Enforcement

Strengthening Central Bank Oversight: More powers and personnel for the "Bangladesh Bank" to detect and sanction violations.
Adoption of Established Standards: Implementation of internationally recognised Corporate Governance Standards, such as those recommended by the OECD or the Basel Committee.
Revision of Laws: Revision of existing banking laws, particularly the "Bank Company Act", to limit family power and increase accountability.

Key Proposals by BAB

Tenure of Directors: Reduction of the tenure of a bank director to six years.
Family Members on Board: Removal or relaxation of the limit on the number of family members serving as directors.
Voting Power: The central bank's proposed amendment stipulates that any individual, institution, or company holding more than 5% of a bank's shares cannot exercise more than 5% of the total voting power of all shareholders.
Simultaneous Directorship: Under the current Bank Company Act, no more than three members from a single family can serve simultaneously as directors of the same bank company.
Independent Directors: The BAB suggests that the number of independent directors should remain as per the existing rule (minimum 2, maximum 3).
Tenure Length: The BAB suggests setting the tenure at nine years instead, arguing for continuity provided by long-serving, experienced directors.
Voting Rights: Under the current law, there are no restrictions on shareholders' voting rights.
Family Shareholding: The BAB suggests raising the maximum shareholding limit for a single family to 25%.
Voting Power Restriction: The BAB has proposed fully repealing this voting power restriction.
Definition of Family: The BAB proposed limiting the definition of "family" to spouses and dependents.

The proposed amendments also include reducing the total number of directors to a maximum of 15, with at least 50% being independent. Additionally, the amendment bars shareholders from holding significant stakes in multiple banks, limiting their holdings in any other bank to a maximum of 2%. The amendment extends directors' liability to defaulted loans of affiliated institutions and imposes a three-year ban on reappointment in such cases. Under the current law, each bank may have up to 20 directors, of whom at least 2-3 must be independent.

These reforms aim to strengthen public trust in the banking system, curb mismanagement and corruption, and increase the stability of the financial sector in Bangladesh. These proposals are also supported by local experts, such as the Bangladesh Institute of Bank Management (BIBM). For more information, please refer to the official Country Reports of the World Bank and the IMF for Bangladesh, as well as analyses by the BIBM.