Bangladesh Bank today asked banks to refrain from procuring goods and services from firms in which directors and high officials of the lenders have ownership, be it direct or indirect.
Such vendors have been found to have taken part in the procurement processes of the lenders, violating banking norms, according to a Bangladesh Bank notice.
“This has created an impediment to establishing corporate governance in the banking sector,” it said.
As per the banking companies act, there is no scope for a firm, in which a bank’s directors and top officials have ownership, to take part in the lender’s procurement activities.
There is a conflict of interest of the same person holding the positions in the two different entities when they engage in business activities.
The central bank had earlier barred bank directors alongside three top officials of the management – the managing director, additional managing director and deputy managing director – to get their firms delisted from the lenders’ list of vendors.
But they are not complying with the rules, leaving an adverse impact on the corporate governance.
A Bangladesh Bank official said that banks were now making purchases from such firms, which was not a good practice.
For instance, some banks are now recruiting employees such as messengers and security guards from firms owned by their directors and top officials, he said, adding that this was not expected.
Fahmida Khatun, executive director of the Centre for Policy Dialogue, said such dual involvements left scopes for corruption.
It is not possible for the central bank to monitor everything banks do and there should be an internal control and compliance system to prevent malpractices at banks, she said.
But there is an unholy alliance between directors and top management of some banks, she said.
This has helped delinquent directors and officials supply products to banks where they are employed, she said.
“Banking business runs on the trust of commoners. So, all should respect and protect the trust,” Khatun said.
