The finance ministry has moved to make changes to the Banking Companies Act 1991 that would strengthen the grip of families on private banks.
The amendment proposed to increase the tenure of the board of directors of a private bank from six years to nine years and accommodate four members of a family instead of two in the board.
Finance Minister AMA Muhith, who signed off the proposal on Wednesday, believes the amendment would bring in dynamism to the sector and help new banks to operate properly.
The proposed amendment though is contrary to the previous one made by the Awami League-led government in 2013.
The sub-section 10 of section 15 of the Banking Companies Act 1991, which was amended in 2013, bars more than two members of a family in a bank’s board.
The tenure of a director is set at three years and no director is allowed to run for more than two terms, meaning maximum 6 years.
Muhith also gave a new definition of family to pave the way for more members of a household in a bank’s board.
Under the present law, the director’s spouse, parents, children and any dependent are considered family.
But the finance minister said a member of a family cannot be termed a dependent if he/she does separate business and becomes a taxpayer.
The existing laws that permit two members of a family in a board limit the scope for other eligible members of the kinfolk, he said while explaining the reasons for the proposed amendment.
The Bangladesh Association of Banks, a forum of private banks’ directors, demanded the amendment.
It sought for an increase in tenure to nine years or three terms in a row. The six-year tenure may be applicable to directors like the independent, appointed or ex-officio ones. The proposal will now need to get the green light from the president, after which it will be placed in the next session of the parliament.
Earlier in May, the government in a cabinet meeting approved the changes to go with the demands of the directors of the private banks.
Experts fear that the move would badly affect the banking sector.
Salehuddin Ahmed, a former governor of the Bangladesh Bank, said the government could have discussed the issue with the experts, including accountants and bankers, before making the amendment.
Unless there is any counter measure put in place, the move will be detrimental to establishing good governance in the banking industry, he said.
On the counter measures, he said the government can include more independent directors and shareholders other than sponsors in a bank’s board.
There are 57 banks in the country, 39 of which are private banks. Many of the banks are run by family and governance has come under serious challenge in recent years.
Source: The Daily Star
Good governance and controls are keys to confidence in the banking industry. It seems that the proposed changes will do the opposite, and will weaken them to allow room for nepotism, bad loans, loss of capital, and other harms to the economy. Certainly, banking experts including past central bank governors should have been consulted prior to proposing the type of changes in form of bank management. We would hope that good sense will prevail and with the advice of experts, the decision-maker (president) will reject the proposed changes.
Thank you, Daily Star, for presenting this article!