Bangladesh Banks Association Proposes Revisions for Banking Corporations Act
The Bangladesh Banks Association (BAB) has made suggestions to the central bank concerning upcoming changes to the Banking Corporations Act of 2025. They’re advocating for reforms that would enhance shareholder involvement and modify governance limitations.
In a letter addressed to the Central Bank on September 7, BAB Chairman Abdul Hai Sarkar emphasized that the term “family” should be narrowly defined to include only spouses and dependent children.
The association recommends increasing the maximum share ownership for a single family to 25% and loosening the restrictions on the number of directors from one family on bank boards.
They also proposed incorporating frameworks like CAMELS, sustainability assessments, and risk evaluations to help establish the board structure of banks. “This would incentivize well-performing banks and compel weaker ones to improve under closer scrutiny,” BAB contended, arguing that such regulations would create more practical oversight systems.
Currently, the law defines “family” broadly, covering spouses, parents, children, siblings, and dependents. However, neighboring nations adopt more streamlined definitions—India considers only spouses and Hindu undivided families, while Pakistan recognizes spouses and direct dependents, and Sri Lanka limits it to spouses and dependent children.
Shareholding Restrictions
BAB suggests abolishing the current 10% cap on individual and institutional shareholdings in banks, advocating for up to 25% or more. They believe that if shareholders’ own capital diminishes, their stakes are inherently at risk, warning that restrictive measures could promote indirect accumulation of shares and muddle monitoring efforts.
Voting Rights
The existing law imposes no limits on shareholders’ voting rights. Nevertheless, proposed amendments would restrict individuals or entities owning more than 5% of a bank’s stock from exercising more than 5% of total voting rights. BAB recommends scrapping this limit, arguing that shareholders should be able to vote in line with their ownership stake.
Board Composition and Directors’ Conditions
Under current regulations, the same individual can serve as a director for the same bank simultaneously. The central bank’s draft would reduce this to two directors from one family at any time. BAB advocates for removing or relaxing this restriction, claiming that doing so could enhance the effectiveness of dedicated directors.
Independent Directors
Currently, banks are allowed up to 20 directors, with at least two to three being independent. Proposed changes would lower the total number to 15, mandating that at least half be independent. BAB disagrees with this, arguing that maintaining the existing figures would prevent reduced management experience and support bank profitability while adhering to regulations.
Shareholding in Other Banks
The current law doesn’t restrict shareholders of one bank from owning stock in others. However, the new amendments would prevent individuals or families from holding significant stakes in multiple banks, capping holdings to 2%. BAB suggests scrapping this proposal, warning that it could deter investment and liquidity in the market overall.
Board of Directors’ Terms
Presently, a bank’s director can serve for up to 12 years, with the possibility of reappointment after a three-year interval. The new proposal would cut this term to six years. BAB argues this is too restrictive, proposing a nine-year term to maintain continuity, which they believe is vital for investor confidence and stable leadership.
Default Regulations
Under current law, a bank director may be liable if they act as a borrower, guarantor, or mortgager. If they leave due to default, they are prohibited from reappointment for a year. The central bank’s proposed amendments are similar, extending the reappointment ban to three years under default conditions. BAB recommends limiting this to six months instead.
Director Appointments
Currently, banking company directors cannot serve on the boards of other banks or financial institutions. The proposed changes would uphold this limit. BAB sees this rule as overly stringent and suggests only restricting service to other banking institutions, which they argue would enable skilled directors to contribute positively to the sector.
