Banks to go in family grips

The government has approved a proposal to amend the Banking Companies Act, doubling the number of directors in a bank's board from a single family and extending the tenure of share-holding directors.

The cabinet yesterday gave the go-ahead for the amendment, Shafiul Alam, cabinet secretary told reporters.

Economists and former central bankers opposed the amendment and said it would hurt the interest of depositors and that the government was bowing to pressure from businessmen.

As per the proposed amendment, the tenure of bank directors would be extended to nine years from the current six years. They could become directors again after a three-year hiatus.

Four members from a family would be able to become directors of a bank's board. The number is currently two.

The Banking Companies Act was last amended in 2013 regarding share-holding directors' tenure and how many of a family could become directors. 

The 2013 amendments were in line with the advice of the International Monetary Fund and followed international best practices. It came against the backdrop of directors getting involved in irregularities.

About the amendments approved yesterday, Mirza Azizul Islam, a former adviser to a caretaker government, told The Daily Star, “This is definitely not desirable from the point of good governance in the banking sector.

“I think the government has surrendered to the pressure exerted by the business lobby. Other than this, I don't find any justification for the amendment.”

The former adviser said if four directors were from the same family, their interest would be reflected in the bank's policies.

Ibrahim Khaled, a former deputy governor of the central bank, said, “It will go against the interest of the depositors and it will establish family domination in banks.”

He said as banks were run with the depositors' money, the sheer control of a single family was not desirable.

“The proposed change may bring very bad results to the governance of banks. Already, the governance in the sector has come under challenge.”

He said instead of increasing the number of directors from the same family and extending their tenure, the government should have given more power to the central bank and brought diversity to the banks' boards.

Khaled thinks the owners of private banks give money to the government for various purposes, particularly for relief work during natural calamities. “As a result, the owners of the banks have been able to exert pressure on the government to make the changes.” 

Bangladesh Association of Banks (BAB), a platform of owners of private banks, in October last year demanded various amendments to the Act.

A BAB team led by its Chairman Nazrul Islam Mazumder placed the demands before Finance Minister AMA Muhith.

The finance ministry took the initiative to amend the law and sought opinion from the central bank.

Bangladesh Bank has opposed the amendment demands, saying, “The governance of the private banks will be affected if the law is amended, as the banks do business with a huge amount of money from depositors.”

The BAB said the tenure could be applicable to the directors coming from outside, like independent directors, appointed directors or ex-officio directors.

Since the sponsors have invested their money to set up banks, it would not be judicious to deprive them of their position and wealth, said the association, adding that the term for the share-holding directors should not be fixed.