Banks cannot appoint their former managing directors as independent directors at their respective board as per the provisions of the Banking Companies Act 1991, Bangladesh Bank (BB) said today.

"Any regular or contractual officials of a bank will not be allowed to act as independent directors of the lender's board under any circumstances,"  it said in a circular.

Banks appoint managing directors (MDs) on a contractual basis.

The Bangladesh Bank has taken the move after a number of banks had appointed their former officials as independent directors at their boards.

The Banking Companies Act has barred banks from appointing an individual as an independent director of the lender's board if there is any possibility of conflict of interest between the lender and the person in the future.

Despite that, a number of banks have continued to breach the rule.

The central bank cited the Banking Companies law and said a person, who had an interest in a bank in the past and has at present, cannot be appointed as an independent director.

Against the backdrop, the central bank asked three banks in January to remove independent directors from their boards.

In its circular, the central bank also instructed banks not to appoint their MDs, deputy and additional managing directors as advisors and consultants within five years since their retirement.

Before the issuance of their circular, banks were permitted to appoint former MDs and top executives as consultants or advisors one year after the retirement of the officials.

A number of banks earlier suffered from a conflict of interests while taking important decisions due to such appointments, a BB official said.

"We have given an explanation of the law so that banks comply properly and avoid violation of the rules," he said.