Age, education criteria set for appointing banks’ independent directors

The Bangladesh Bank (BB) has for the first time set the minimum and maximum age and other criteria for independent directors of banks as part of its efforts to restore good governance in the scam-hit banking sector.

It comes less than a week after the minimum age for directors was set at 30.

According to the guidelines issued yesterday, the BB said the minimum age for independent directors has been set at 45 years and the maximum age will be 75 years.

The latest move comes as the banking sector is going through one of its toughest times as people's trust in them has taken a beating owing to massive irregularities at some lenders, directors' undue intervention, and rising bad loans.

On February 4, the banking regulator unveiled a roadmap to bring down default loans below 8 percent by June 2026 from 9 percent in 2023 and ensure corporate governance in the banking sector. The BB has taken 17 initiatives to implement the roadmap.

The new guideline said gaining and maintaining the trust of depositors is essential for a bank. "Therefore, the responsibility of independent directors is more important than shareholder directors."

Independent directors can protect the interest of depositors, it said.

Anis A Khan, an independent director of Trust Bank, termed the new guideline "detailed and comprehensive".

"We welcome the consolidation of all stipulations in one document, thereby providing clear direction and clarity."

The independent directors must have at least 10 years of experience in either management and business or have professional experience, according to the guidelines.

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BB tightens rules on appointing bank directors

They must hold bachelor's and master's degrees in economics, banking, finance, business administration, law and accounting from a recognised university.

Higher education in information technology will be considered as an added qualification when it comes to the appointment of independent directors of digital banks.

Experienced teachers in the areas of business, law and technology at public, autonomous and private universities, bankers, and officials of the finance, industries, law and commerce ministries will get priority to become independent directors.

In order to sit on the board as independent directors, one must not have any interest in a bank.

Family members of the persons nominated for the posts can neither own any shares in the company nor hold any gainful position in a bank.

Similarly, there must be assurance from banks that individuals to be made such directors were not convicted of any criminal offences or were not involved in any forgery, financial crime or other illegal activities.

Persons who faced adverse judgements in any case and were penalised for violating rules will not qualify.

In Bangladesh, a bank can have a maximum of 20 directors and there has to be at least three independent directors.

Independent directors will get a maximum of Tk 50,000 per month along with the regular allowance.

Like directors, they will get the highest Tk 10,000 as an honorarium for attendance at board meetings or associate committee meetings, up from Tk 8,000 now.

The directors will be entitled to the honorarium for attending two board meetings, four executive committee meetings, one audit committee meeting, and one risk management committee meeting a month.

Responsibility of independent directors

Independent directors will have to communicate to the central bank any information regarding violation of the Bank Company Act, 1991 or any other laws.

He or she will have to participate in the board meetings and give informed opinions on the agendas. They will always strive to protect the interests of depositors and common shareholders (other than directors).

Khan said the qualifications required to be an independent director are many and stringent.

He said the chairman and members of the audit and risk management committees should be adequately compensated in addition to what has been allowed, given the depth of the work required and the responsibility assumed.

"A lot of man hours are required and an honorarium of Tk 10,000 per meeting is a small amount compared to 1 lakh rupees given in India," said the former senior banker.