12 years on bank board: A move that may frustrate fight against NPL
Economists and bankers say the amendment was unwanted and it will undermine the spirit of the law that aims to fight default loans and improve governance in the financial sector
The Bank Company (Amendment) Bill 2023, which was passed in parliament on Wednesday, has some good aspects: defining willful defaulters, barring them from travelling abroad and being bank directors, limiting family members to three on a bank board from four now, and fining banks for failing to report the central bank about loan defaulters.
But all these good initiatives have been overshadowed by a last-minute amendment allowing a director to stay on a board for 12 years at a stretch, up from nine years.
It did not appear in the bill placed by the finance minister, but a ruling party lawmaker proposed the amendment, which was incorporated in the bill amid uproar and strong protest by opposition lawmakers.
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Economists and bankers have said the amendment was unwanted and it would undermine the spirit of the law that aims to fight non-performing loans (NPLs) and improve governance in the financial sector.
The Business Standard Staff Correspondent Sakhawat Prince interviewed the experts over phone.
Directors’ tenure raised due to pressure from vested interest groups
Ahsan H Mansur, Executive Director, Policy Research Institute
Contrary to the changes sought by the central bank, the term of bank directors has been extended in the Bank Companies (Amendment) Bill 2023.
I think this has been done under the pressure of vested interest groups, as a result of which the crisis in the banking sector will amplify.
These dishonest directors are mainly responsible for default loans in the country. It appears that these individuals wish to maintain their positions indefinitely.
Before this, the bill was last amended in 2018. At that time, under the pressure of the bank owners, four people from one family were allowed to be bank directors for nine consecutive years.
The recent bill stipulates that if a company connected to an individual or a group defaults, it cannot be acknowledged that another company associated with the same entity is also in default.
As a result, many people will default by taking loans in the name of a company. There will be no problem in running their business. This will promote a culture of defaulting on loans. We do not understand where the government intends to steer the banking sector in light of these developments.
Lack of political will to promote good governance
Salehuddin Ahmed, Former Governor, Bangladesh Bank
Currently, the biggest problem in the banking sector is default loans. If the government does not realise this, the economic crisis will deepen. I think there is a lack of political will from the government to restore good governance.
There are some principles in the economy that should be followed. Politicians can express their views, but if they impose that on the economy, it will hamper good governance.
Extending the tenure of directors is not right. Through this, we are supporting irregularities. It would encourage risky investment under the pressure of the directors.
I think a director should stay on a board for a maximum of three years. There are many people who are eligible to become directors, but they are not able to join due to lack of a vacancy.
The new bill will cause disruption in good governance and efficiency of the bank.
The central bank should try to change this provision before the bill is gazetted. If directors are allowed to stay in their positions for longer periods of time, they will be more likely to abuse their power. This will lead to a decrease in accountability.
The provision that exempts a group or an individual from being declared as a defaulter if one of their company defaults will worsen the loan default culture that is prevalent in the country at the moment.
It creates a potential incentive for defaulting on loans
Nurul Amin, Former managing director, Meghna Bank
The recent bill passed by the parliament has extended the tenure of directors. But this is not what we desired.
I think once a bill is passed in the parliament, it is very difficult to repeal it. But I can say we did not like it. I think the regulatory institutions are not working properly.
The directors of the banks seem determined to remain on the board indefinitely, and the newly passed bill appears to cater to their desires. Unfortunately, this bill has not only undermined transparency, but also created a potential incentive for the continued trend of loan defaults.
I haven't observed any significant efforts being made to reduce default loans. One potential solution could involve establishing an asset management company or creating a banking commission to provide recommendations in this regard, but unfortunately, such measures have not been taken.
Various countries have debt recovery agents in place, and governments often appoint Ombudsman offices to handle banking-related grievances.
There appears to be a lack of proactive steps to effectively reduce default loans. In fact, the recent rules implemented by the central bank and the government seem to permit an increase in long-term non-performing loans.
New bill will not benefit the banking sector
Selim RF Hussain, Chairman, ABB and managing director, Brac Bank
The banking sector currently faces a significant challenge in achieving overall good governance. Over the past decade, the alarming rise in default loans can be attributed, in part, to the absence of effective governance practices.
The tenure of directors has been fixed to 12 years, which is contrary to international practices. I think it will hamper good governance.
I do not think the new bill will benefit the country's banking sector.
The amendment now states that a bank board can have a maximum of three members from the same family, whereas previously, four family members were allowed on the board. In my opinion, the reduction in the number of family members on the board is a positive step towards improving good governance.
It is not clear to me that if any subsidiaries of a group defaults then the group cannot be shown as defaulting. However, if it is allowed, then defaulting customers will be given more opportunities.
