Last week the cabinet of Bangladesh okayed the draft Bank Company Act 2023 with an expressed intention to improve financial governance in our country. It was desired that if implemented properly, it could have major consequences for popularly known willful loan defaulters as well as the way our bank boards are formed and run.

This has been long overdue. Experts have been talking about it for years, and finally, the government has decided to go for the amendment with a reasonable amount of loan from the World Bank hanging in the balance for this. The International Monetary Fund, as part of its $4.7 billion loan, also stipulated that the government submits the draft law before parliament by September.

Regardless of the reason behind the decision to finally approve the draft act, it is no doubt a welcome development for our banking sector. It could undo a lot of the bad policies adopted in recent times, such as increasing the maximum number of members from the same family that could serve on a bank's board.

It will also require bank directors and their family members to provide collateral, bonds, or securities to secure loans from the bank, the absence of which has led to numerous scandals and massive insider loans across our banking sector.

As stipulated in this Act, banks will have to publish the lists of willful defaulters. An individual will be considered a willful defaulter if they don't repay a loan taken in their name or their company's name despite having the means to pay it back. And any person will be treated as a habitual defaulter if they take loans under the name of a non-existent company.

Additionally, banks will have to inform the Bangladesh Bank about willful loan defaulters and the central bank can then issue a ban on their foreign travel, obtaining trade licence, and companies' registration with the Registrar of Joint Stock Companies and Firms and the Bangladesh Securities and Exchange Commission, which can act as a deterrent against the culture of willful loan default.

The draft act also broadens the role of the central bank in some respects for it to investigate whether rules are being broken.

There is an old saying: a law is only as effective as its enforcement. One may recall that the Bangladesh Bank has time and again flouted its own rules and regulations over the years. Such violations and misgovernance resulted in undue benefits for a few at the expense of many. So, while the draft act seems promising, the proof of how sincere the government really is in addressing the problems, after having done the almost opposite for years, will be in how well it implements it.

Our banking sector is plagued with large bad loans, rampant insider lending, a few influential board members only dictating the terms along with very few products offering and low automation. Hence only lowering the number of directors from one family may be the tip of the iceberg.

If we are sincere to heal the wounds in our banking sector, we must make sure the ownership of a well-run bank doesn't get changed in the night in a five-star hotel and more importantly a CEO of a bank is not forced to resign, or his replacement is not approved during odd hours. Hence along with an updated Bank Company Act, we need to sponsor an all-out reform in the banking sector, including putting up a detailed bankruptcy or insolvency law.

The author is an economic analyst