Bank chairmen can now serve on both banks' foundations, foreign entities

Chairmen of banks' boards of directors and subsidiary committees can now serve on the boards of directors of bank-owned foreign exchange houses, money transfer operators and finance companies abroad as well as bank-financed foundations within the country, the Bangladesh Bank said in a circular on Thursday.

Earlier in May 2022, a central bank directive stated that the chairman of a bank's executive committee, audit committee, or risk management committee, if they are the chairman or board member of the bank, could not be the director of any company or foundation formed and managed by the bank.

Any person holding the post of chairman or director of such organisation must resign, the directive said. A deadline of 30 June 2022 was also set for resignation from such positions.

However, due to demands from the Bangladesh Association of Banks (BAB), the resignation deadline for subsidiaries was postponed to 30 June of this year.

Furthermore, the BAB's demand resulted in the relaxation of rules concerning foundations formed and managed with the financing of subsidiaries and banks located abroad.

As a result, bank board chairmen will only be required to leave the position of their banks' securities and asset management companies located in the country. They will still be permitted to make decisions regarding the spending of their banks' social responsibility programmes through the position of the banks' foundation.

The central bank justified these changes by citing the challenges faced in the current global economic situation, particularly in the collection of expatriate income (remittance) and the management of exchange houses, money transfer operators, and finance companies operating abroad. The lack of experience and expertise in dealing with operational risks may lead to potential financial losses for the bank and could negatively impact the bank's reputation, it added.

Additionally, the central bank emphasised the need for proper planning in managing organisations for the benefit of funds allocated to foundations formed and managed with the banks' financing. 

Besides, the central bank considers it necessary to be consistent with income expenditure, goals and objectives of the banks concerned.

Considering these reasons, Bangladesh Bank has decided that the previous rule restricting chairmen's involvement in subsidiaries and bank-financed foundations will not be applicable to those established abroad. However, the previous ban will still be in place for other subsidiaries of banks.

Bank officials have, however, told The Business Standard that apart from subsidiaries and bank-financed foundations, there are not many institutions where chairmen currently serve.

In an earlier notification, Bangladesh Bank stressed the importance of the proper role of the board of directors and management in conducting banking activities. The bank recommended avoiding obstacles that could hinder discipline in bank management. Thus, the central bank asked for withdrawals from positions in subsidiaries to ensure better discipline and governance in bank management.