Bank Owners Resist Proposed Shareholding Limits

The Bangladesh Bank’s proposed amendment to the Bank Companies Act, aimed at restricting shareholding by individuals, families, and institutions across multiple banks, has met with strong opposition from bank owners and industry representatives.

Under the draft amendment, no individual, family member, or institution would be allowed to hold more than 5% of shares in multiple banks, either directly or indirectly. The central bank justifies the move as a measure to reduce conflicts of interest and curb undue influence over bank decision-making, citing recent experiences of mismanagement and financial irregularities in the sector.

A consultation meeting was held last Wednesday by the Financial Institutions Division (FID) of the Ministry of Finance, chaired by its secretary, Nazma Mobarak, to collect feedback on the proposed changes. The draft proposes adding three new subsections to Section 14(k) of the Bank Companies Act 2025, with the primary goal of preventing any individual or institution from exercising control over multiple banks simultaneously.

Key provisions of the draft include:

1. Restriction on Large Shareholding Across Banks: An individual, family, or institution may not hold significant stakes in more than one bank at a time.
2. Aggregate Limit Across Banks: If an entity holds 2% or more of shares in one bank, it cannot simultaneously hold 2% or more in another bank. This applies both individually and jointly.
3. Voting Rights Capped at 5%: Regardless of holding more than 5% of shares, voting rights will be limited to 5%, except for the government, non-profit institutions, and strategic institutional investors.

Currently, under the existing Bank Companies Act, there is no restriction on cross-holdings, and a shareholder may hold up to 10% of a bank’s shares, exercising full voting rights on a “one share, one vote” basis.

Stakeholder Reactions

Representatives from the Bangladesh Association of Banks (BAB) strongly opposed the proposed limits. They argue that ordinary shareholders cannot influence bank policies directly; rather, the board of directors holds decision-making power. BAB further stated that since limits on family representation on boards have already been proposed, additional restrictions on shareholding are unnecessary.

Conversely, Bangladesh Bank officials cited cases where a large industrial group controlled majority shares in six banks, enabling them to influence policy decisions, siphon off funds, and harm depositors. Compensation for depositors of five merged private banks last year cost the government BDT 20,000 crore, highlighting the stakes involved.

Financial Institutions Division Secretary Nazma Mobarak said the draft amendment requires further deliberation, noting that differences persist between the central bank and BAB over shareholding caps. She indicated that representatives from both sides have been asked to reach a consensus at the next meeting.

BAB has proposed defining “family” strictly as spouses and dependent members and increasing the aggregate family holding limit to 25%, arguing that broader definitions could unfairly restrict legitimate entrepreneur families. The association emphasises that any legislative reform should avoid unnecessary rigidity.

Proposed Shareholding Limits: Summary

The debate underscores the tension between regulatory efforts to safeguard the banking sector and concerns from bank owners about over-regulation. As discussions continue, the final version of the amendment will need to strike a balance between financial stability and operational flexibility for shareholders and entrepreneur families.