50% of bank directors to be independent

The interim government is set to amend the Bank Company Act by reducing the board members from a single family, while at least 50 percent of the directors will be independent, said Bangladesh Bank Governor Ahsan H Mansur.

Three from the same family can serve as bank directors, as per the Bank Company (Amendment) Act, 2023. Previously, the number was higher.

The number of independent directors could exceed 50 percent, Mansur told The Daily Star in an interview recently.

"We will form a panel from which the independent directors must be selected. If someone outside the panel is to be appointed, it must be a highly distinguished and qualified individual, and a proposal can be made with the Bangladesh Bank's approval."

But if just anyone is proposed, the BB will not grant approval.

"Their educational qualifications, experience, and knowledge of the banking sector will be taken into account. In other words, a professional will be appointed to the position."

Asked about the planned merger of weak banks, he said that in the initial phase, five private banks will be merged.

"State-owned banks will also be included in the merger process. Some state-owned banks are nearly bankrupt and must be included, while others are in relatively good condition and will be merged with them."

The matter will be discussed with the government and the BB is currently making some procedural preparations.

"We see this as an ongoing process, as I have mentioned before. It will remain in place permanently and has nothing to do with a change in government or the government staying in power. Whenever any bank or multiple banks face problems, we will intervene. That is our policy."

Sponsor-directors of banks must understand that the BB can remove them as early as tomorrow, and they will be removed if they fail to manage the bank properly, said Mansur, also a former economist of the International Monetary Fund.

"Just being an owner doesn't mean they bear all responsibilities, nor does it give them the power to do whatever they want. They have no right to plunder. Banks operate with the people's money. The owners are merely custodians of that public money."

If they deviate from this role, the central bank will take action and remove them.

"That's why we have established a dedicated department. It's a constant warning: if you don't act responsibly, we are here to intervene."

While discussing the ailing situation of the non-bank financial institutions (NBFIs), Mansur said the central bank had already conducted an assessment and the findings show that at least 15 financial institutions are completely non-functional.

"They have no capacity to operate. Their NPLs [non-performing loans] might be 80 percent or even 100 percent."

As many as 10 NBFIs are in good condition.

"For the remaining 20 institutions, we have issued notices asking why their licences should not be suspended."

Show-cause notices have been served to the 20 NBFIs.

"We are moving towards a resolution in their cases -- whether through liquidation or merger, something must be done."

There are some financial costs involved: about Tk 9,000 crore will be required.

While talking about the legal barriers to recovering bad loans, Mansur said they are planning to amend the Money Loan Court Act, increase the number of benches dealing with financial sector cases to expedite the legal process.

A decision must be made within six months or ideally within three months.

"However, this is subject to discussion and depends on whether the Chief Justice and the Supreme Court agree, since the judiciary is independent."

He will also push for creating a special judicial cadre focused solely on financial matters.

Currently, most of the judiciary's workload involves cases related to murder, violence and land disputes, according to Mansur.

But beyond that, there is a vast financial world, which legal professionals often lack adequate understanding of, and the judicial process lacks sufficient engagement with.

"We need to invest significantly in this area -- and it is the judiciary that must take the lead. We will also try to introduce another provision that a defaulter would not be able to file writ petitions repeatedly."