Bank Company Act: BAB for lifting family director cap, proposes 9-year tenure

The Bangladesh Association of Banks (BAB) has submitted its recommendations to the central bank on the proposed 2025 amendment to the Bank Company Act, urging reforms that would broaden shareholder participation and ease governance restrictions.

TBS Illustration

In a letter sent to the central bank today (7 September), BAB Chairman Abdul Hai Sarkar called for the definition of "family" to be limited strictly to spouses and dependents.

The association also proposed raising the maximum shareholding limit for a single family to 25% and relaxing restrictions on the number of directors from one family.

The association recommended that Bangladesh Bank use CAMELS, sustainability, risk rating, and PCA frameworks to determine board structures for each bank.

"This would reward well-performing banks and compel weaker institutions to improve under strict supervision," the BAB said, arguing that such outcome-based regulation would create a realistic, balanced, and sustainable oversight system.

Currently, the law defines family expansively, including a person's spouse, parents, children, siblings, and any dependents.

The BAB noted that neighbouring countries adopt more practical definitions. In India, "family" includes only spouses or a Hindu undivided family. Pakistan recognises spouses, direct dependents, and dependent siblings, while Sri Lanka considers only spouses and dependent children.

Shareholding limits

The BAB proposed abolishing the current 10% limit on bank shareholding for individuals and institutional investors, allowing up to 25% or more.

The association argued that higher shareholding fosters a sense of ownership, responsibility, and governance, as shareholders' own capital is at risk if a bank falters. It warned that restrictive limits encourage indirect share accumulation, complicating oversight.

Voting rights

Under the current law, there are no restrictions on shareholders' voting rights.

However, the central bank's proposed amendment stipulates that any individual, institution, or company holding more than 5% of a bank's shares cannot exercise more than 5% of the total voting power of all shareholders.

The BAB has proposed fully repealing this restriction. It argued that under the current Bank Company Act, there are no restrictions on voting rights and that shareholders can vote in proportion to their shareholding, consistent with the "one share, one vote" principle established under the Companies Act 1994.

Board composition, director terms

Under the current Bank Company Act, no more than three members from a single family can serve simultaneously as directors of the same bank company.

The central bank's 2025 draft amendment reduces this limit to two members from a single family at the same time.

The BAB has proposed removing or relaxing the limit, arguing that, if applied with discretion, easing the restriction would allow more committed and attentive directors to contribute effectively to the board.

Number of independent directors

Under the current law, each bank may have up to 20 directors, of whom at least 2–3 must be independent.

The central bank's proposed amendment reduces the total number of directors to a maximum of 15 and requires that at least 50% of them be independent.

The BAB opposed this proposal, suggesting that the number of independent directors should remain as per the existing rule (minimum 2, maximum 3).

It reasoned that having half the board as independent directors would reduce shareholder control, diminish practical experience, and prioritise compliance over profitability and growth in bank management.

Shareholding in other banks

Under the current law, a shareholder of one bank faces no restrictions on holding shares in another bank.

The proposed amendment, however, bars the same individual, institution, or family members from holding significant stakes in multiple banks, limiting their holdings in any other bank to a maximum of 2%.

The BAB has recommended repealing this provision. It argued that it would restrict both foreign and domestic investment, hinder capital mobilisation for weaker banks, and reduce market liquidity.

Internationally, such restrictions typically apply only within a single bank, not across the entire sector. The BAB also noted that the provision contradicts constitutional rights to conduct business and own property.

Tenure of directorship

Under the current law, a bank director may serve for a maximum of 12 years and may be reappointed after a three-year gap.

The central bank's proposed amendment reduces this tenure to six years.

The BAB argued that this is too restrictive and suggested setting the tenure at nine years instead. It said continuity provided by long-serving, experienced directors is vital for investor confidence and strategic leadership. A shorter term could create gaps in experience and send negative signals to the market.

Vacancy of directorship due to default

Under the current law, a bank director may be held liable if they act as a borrower, guarantor, or mortgagor for a loan. If the position becomes vacant due to default, reappointment is barred for one year.

The central bank's proposed amendment extends directors' liability to defaulted loans of affiliated institutions as well and imposes a three-year ban on reappointment in such cases.

The BAB has recommended repealing this provision and instead suggested limiting the reappointment ban to six months.

Appointment of directors

Under the current law, a director of a bank company cannot simultaneously serve as a director of another bank, financial institution, insurance company, or any company under their control.

The proposed amendment keeps this restriction unchanged.

The BAB considers the rule too restrictive and has recommended limiting it only to directors of other bank companies.

According to the BAB, this would enable experienced and skilled directors to participate more effectively in the banking sector, preserve investor confidence, and ensure stability and efficiency in board structures.