The government is considering changes to proposed banking reforms that could allow family influence over private banks to continue, prompting concerns among economists and financial sector experts about the future of corporate governance. Under the latest draft of amendments to the Bank Company Act, up to three members of the same family may be permitted to serve on a bank’s board, while directors could be allowed to remain in office for nine consecutive years instead of the six years proposed by Bangladesh Bank under the interim administration.
The revised approach would also relax some proposed restrictions on loan-defaulting directors. Critics warn that weakening these safeguards could undermine efforts to restore discipline in a banking sector that has faced allegations of irregularities, political influence and the concentration of control in the hands of powerful business groups.
Under the existing Bank Company Act, a maximum of three members of the same family can serve on a bank’s board at the same time. A director may remain in office for up to 12 consecutive years, after which a three-year break is required before returning to the same board.
During the interim administration, Bangladesh Bank proposed reducing the number of directors from one family to two and limiting a director’s consecutive tenure to six years. The proposals were intended to curb concentrated family control and strengthen accountability within banks.
However, a preliminary review by the Financial Institutions Division has favoured retaining the three-director limit for each family and setting the maximum consecutive tenure at nine years.
A review meeting on the draft amendments to the Bank Company Act was held on 20 September under the chairmanship of Financial Institutions Division Secretary Nazma Mobarek. Representatives from Bangladesh Bank, various ministries and government departments, the Bangladesh Association of Banks (BAB) and business organisations attended the meeting.
On 4 October, Mobarek told Prothom Alo that the views of the relevant stakeholders had been collected, but no final decision had been made. Bangladesh Bank would conduct a further review before submitting the draft for consideration by the Cabinet.
Bank owners oppose tighter restrictions
During the review process, BAB opposed several of the proposals introduced under the interim administration. The association argued that reducing the number of directors from the same family could disrupt ownership structures and affect the normal functioning of bank boards. It called for caution before introducing such restrictions.
BAB maintains that banks need directors who are committed to their institutions and can contribute their experience over an extended period. According to the association, excessively short tenures could lead to a loss of experience and send a negative signal to the banking industry. It has argued that reducing the current 12-year limit to nine years would be a more appropriate compromise.
BAB Chairman Abdul Hai Sarker told Prothom Alo that the draft prepared during the interim administration contained several inconsistencies. The association had submitted its views at the time, but they had not been fully reflected in the proposals. He said BAB had since presented its position to the current government and understood that some of its recommendations were being incorporated into the revised draft.
Asked whether the proposed changes could create further opportunities for family influence in banking, Sarker expressed confidence that the government would protect the broader interests of the sector.
Financial analysts, however, dispute the association’s reasoning. They argue that allowing directors to remain in office for long periods has helped entrench family control in some banks, contributing to governance failures and financial distress. In their view, the experience of the past decade suggests that stronger safeguards, rather than concessions, are needed.
How directors’ tenure reached 12 years
Before 2018, bank directors could serve for a maximum of six consecutive years. That limit was extended to nine years in 2018 and increased again to 12 years in 2023.
The 2023 amendment prompted controversy in Parliament. On 8 June that year, then Finance Minister AHM Mustafa Kamal introduced the Bank Company (Amendment) Bill, 2023. The original bill did not propose changing the length of directors’ tenure. Shortly before it was passed, however, ruling-party MP Ahsanul Islam moved an amendment proposing that directors be allowed to serve for 12 consecutive years. The proposal was approved.
The amendment drew protests from members of the Jatiya Party, who walked out of Parliament. Mujibul Haque, then a Jatiya Party MP, criticised bank directors and chairmen, alleging that their actions had contributed to the deterioration of institutions including National Bank and Exim Bank.
The extension was widely criticised as a concession to influential bank owners close to the then government. Nazrul Islam Mazumder, former BAB president and chairman of Exim Bank, was associated with efforts to secure a longer tenure for directors. He is now in prison. Former finance minister Mustafa Kamal has left the country, while former Bangladesh Bank governors Fazle Kabir and Abdur Rouf Talukder have not been appearing publicly, according to the source report.
The debate over tenure is closely linked to broader concerns about the concentration of ownership and control in the banking sector. Critics argue that long-serving directors can consolidate influence, weaken independent oversight and make it harder to challenge decisions that benefit particular individuals or business groups.
Distressed banks expose the cost of weak governance
During the Awami League government’s tenure, allegations emerged that business groups including S Alam Group, Beximco, Premier Group and Sikder Group exercised control over banks and financial institutions and were involved in widespread irregularities and corruption. The allegations included placing spouses, children, sons-in-law and other close relatives on bank boards alongside members of the controlling families.
Such arrangements can create conflicts of interest when decisions about lending, risk management and the use of depositors’ money are influenced by personal or group interests. Effective governance therefore depends on transparent decision-making, independent scrutiny and clear accountability for directors.
Several banks associated with concentrated family control are now in financial distress, leaving depositors struggling to recover their money. To address the crisis, the government is establishing Sammilito Islami Bank by merging five troubled banks. The government has provided Tk 20,000 crore in capital from the public treasury to support the consolidated institution.
The use of public funds to stabilise distressed banks has intensified questions about accountability. When banks suffer from poor governance and financial mismanagement, the consequences extend beyond shareholders and directors: depositors face uncertainty, confidence in the financial system weakens, and the government may be forced to use taxpayers’ money to contain the damage.
Against this background, Bangladesh Bank and the Financial Institutions Division jointly prepared a draft of amendments to the banking law during the interim administration. The draft was not issued as an ordinance before that administration left office.
Rashed Al Mahmud Titumir, the Prime Minister’s adviser on economic and planning affairs, told Prothom Alo on 4 October that the amended law should prioritise the protection of depositors and the establishment of sound governance throughout the banking sector.
Dispute over the definition of family
Bangladesh Bank had proposed broadening the legal definition of family to prevent relatives from using different categories of kinship to maintain a collective presence on the same bank board. Ahsan H Mansur was governor when the proposal was developed under the interim administration.
Under the existing law, family members include a person’s spouse, parents, sons, daughters, brothers, sisters and dependants. The proposed amendment sought to extend the definition to include sisters-in-law, brothers-in-law, parents-in-law and other relatives by marriage, as well as dependants.
BAB has argued that the definition should be restricted to spouses and dependants. In support of its position, the association has referred to the legal approaches of other South Asian countries. It says India’s framework includes spouses or a Hindu undivided family, while Pakistan’s definition covers spouses, dependent lineal descendants and dependent brothers and sisters. In Sri Lanka, the definition is limited to spouses or dependent children.
The issue has been debated for decades. A banking reform committee led by economist Wahiduddin Mahmud recommended in its 1996 report that multiple members of the same family should not be allowed to sit on a bank’s board.
Former Bangladesh Bank governor Ahsan H Mansur told Prothom Alo that the earlier draft had been designed around international practices, with the aim of reducing family control, increasing the number of independent directors and limiting directors’ tenure. He expressed disappointment that the government appeared to be retreating from those objectives.
Mansur also criticised what he described as a tendency among some directors to regard a bank as their personal or family property. He argued that the government had a responsibility to use legislation to challenge such attitudes and protect the interests of depositors and the wider economy.
Proposed relief for loan-defaulting directors
Under the existing rules, a director whose own loan, or a loan guaranteed by them, becomes classified as a defaulted loan has two months to regularise the account. Failure to do so can result in the loss of the director’s position. The law also provides for the sale of the director’s shares to recover the outstanding debt.
Bangladesh Bank’s earlier draft proposed tougher restrictions. Under that proposal, a director could also lose their position if a company in which they had an interest defaulted on its loans.
The revised draft is set to drop that provision. It also proposes reducing the period a former director must wait before becoming eligible for another board appointment from one year to six months.
Critics say the proposed changes could weaken accountability by narrowing the circumstances in which directors face disqualification. A director’s financial interests may extend beyond personal borrowing to companies connected with them, making related-party exposure an important consideration in assessing potential conflicts of interest.
Effective safeguards are particularly important because directors can influence lending decisions, risk assessments and the allocation of a bank’s resources. Without adequate restrictions, the relationship between a director and a financially distressed company could raise questions about whether decisions are being made in the interests of the bank and its depositors.
Changes to Bangladesh Bank’s intervention powers
Section 47 of the Bank Company Act currently allows Bangladesh Bank to dissolve an entire board if there is evidence that a bank’s activities are contrary to the interests of the institution or its depositors. Following the dissolution, the central bank can appoint an administrator or another suitable person to take charge of the bank.
The revised framework may allow Bangladesh Bank to appoint an administrator while leaving the existing board in place. This would give the regulator another means of intervening in a bank’s operations without necessarily dissolving the entire board.
The arrangement could provide greater flexibility during a crisis, particularly when immediate action is needed to protect depositors or prevent further deterioration in a bank’s financial position. However, questions remain about how effectively an administrator could address misconduct if the board responsible for oversight continued to operate.
Existing provisions allow Bangladesh Bank to stop a bank from accepting new deposits if it is being run in a manner contrary to depositors’ interests. The regulator can also prohibit the bank from extending loans. The proposed amendments may give the central bank additional authority to prevent such institutions from providing new loans, investments or capital to their subsidiary companies.
The draft also seeks to restrict directors of debtor companies from resigning, being dismissed or otherwise removed from their positions without the bank’s approval. It would similarly limit their ability to transfer or sell shares without authorisation. These measures are intended to prevent changes in ownership or management from undermining a bank’s ability to protect its financial interests.
The effectiveness of the proposed powers will depend on how clearly responsibilities are defined and how consistently the regulator can enforce them.
Independent directors may remain a minority
The draft prepared under the interim administration proposed a 15-member board for each bank, with independent directors accounting for 50 per cent of its membership. It also proposed barring Cabinet members, MPs and local government representatives from serving on bank boards.
At present, banks can have boards of up to 20 members, with provisions for three independent directors. The proposed changes were intended to strengthen oversight by ensuring that a substantial proportion of board members were not directly tied to the bank’s controlling shareholders.
BAB opposed the proposal to make half the board independent. The association argued that such a requirement would reduce shareholders’ control and could lead to compliance taking precedence over profitability and growth. It has proposed limiting the number of independent directors to between two and three.
After considering the views of the stakeholders, the Financial Institutions Division is understood to favour a maximum of three independent directors. If that position is retained in the final law, the independent representation envisaged in the earlier draft will be substantially reduced.
Independent directors are generally expected to provide scrutiny of management decisions and help identify conflicts of interest. Their effectiveness, however, depends not only on their numbers but also on their independence from controlling shareholders, access to information and ability to challenge decisions without pressure.
Economists warn of another banking crisis
Mustafa K Mujeri, a former chief economist at Bangladesh Bank, told Prothom Alo that a substantial portion of past irregularities, corruption and alleged financial looting in the banking sector had involved collusion among board members.
He described the proposal to limit directors’ consecutive tenure to six years as a positive step and said restricting each family to no more than two directors was also important. Relaxing these measures, he warned, could increase the risk of another crisis in the banking sector.
Mujeri noted that the draft had not yet been finalised. He expressed hope that the government would reconsider the proposals in the interests of the banking sector’s overall health before the amendments were placed before the Cabinet.
The debate over the Bank Company Act is about more than the number of relatives allowed on a board or the length of a director’s tenure. It concerns whether banks are governed primarily in the interests of their depositors and shareholders or remain vulnerable to concentrated influence and conflicts of interest.
Bangladesh’s recent banking difficulties have demonstrated the financial and public costs that can arise when governance and oversight fail. The final amendments will therefore be closely watched by depositors, investors and financial sector observers. Stronger laws alone will not resolve the sector’s problems, but effective rules, independent supervision and consistent enforcement will be essential to rebuilding confidence in the banking system.
