BB requests Finance to relax shareholding rules for digital bank investors

Highlights:

• Bangladesh Bank seeks approval to relax digital bank shareholding limits
• Proposal allows investors to exceed current 10% ownership restriction
• Central bank cites tech, cybersecurity, and innovation needs for flexibility
• Existing law caps individual or joint holdings without prior approval
• Finance ministry previously relaxed limits for Nagad Digital Bank investors
• CPD warns to prevent dominance or misuse despite higher ownership allowances

The Bangladesh Bank has sought the finance ministry's approval to relax the shareholding limits for digital banks. If approved, shareholders of digital banks would be allowed to acquire more than 10% of shares individually or jointly, and hold more than 5% of shares.

In a recent letter to the Financial Institutions Division of the finance ministry, the central bank argued for relaxing the cap on shareholding, stating that "the effective establishment and sustainable operation of technology-driven digital banks require substantial investment in technology, data protection, cybersecurity, and continuous innovation."

The letter added that in digital banks, entrepreneurs' IT expertise and experience, in addition to financial capital, are critical contributions. For effective management and sustainable growth, long-term engagement of strategic domestic and foreign institutional investors is essential.

It also noted that to expand investment incentives and ensure long-term capital stability, digital bank investors should be allowed a higher shareholding limit than the maximum applicable for scheduled bank shareholders.

Under the existing Bank Companies Act, no individual, institution, company, or family member may directly or indirectly, individually or jointly, purchase more than 10% of a bank's shares, and no one can hold more than 5% without the Bangladesh Bank's approval.

However, another provision of the law empowers the central bank, in consultation with the government, to grant exemptions from the maximum acquisition and holding limits for any individual bank or all banks.

An official from the Financial Institutions Division, on condition of anonymity, told TBS, "The ministry received the Bangladesh Bank's letter today [28 October] and a decision is expected soon."

The official added that during the previous Awami League government, the shareholding cap was relaxed for Nagad Digital Bank investors, and the finance ministry may similarly approve a higher limit based on Bangladesh Bank's current proposal.

On 3 June 2024, Nagad Digital Bank, the country's first digital bank, received final approval from the Bangladesh Bank. However, following the fall of the AL government on 5 August of the same year, the Bangladesh Bank suspended the license on 22 August.

Nagad Digital Bank's total number of issued shares is 12.50 crore. Three companies hold ownership exceeding the typical 10% limit: The US-based Company Osiris Capital Partners LLC owns the largest stake, 49.80% of the bank's total shares. Blue Haven Ventures LLC, another US company, holds 24.90% and the Singapore-based firm Finclusion Ventures Pte Ltd owns 11% stake in Nagad Digital Bank.

Fahmida Khatun, executive director of the Centre for Policy Dialogue (CPD), told TBS, "It is important to ensure that the rationale behind relaxing the shareholding limit is maintained. Bangladesh Bank must monitor so that no individual, company, or institution acquires excessive shares to dominate or misuse the bank."

She added, "Even when relaxing the higher limit, there must still be a ceiling on how much it can be."

Deadline for Digital Bank application extended to 2 Nov 

On 26 August this year, the Bangladesh Bank invited fresh applications for digital bank licences from 1 to 30 September, revising its digital bank guidelines to prevent shell companies from sponsoring proposed digital banks.

On 15 September, the central bank extended the deadline to 2 November. Several companies, including mobile operator Banglalink and Akij Resources, are reportedly gearing up to apply for a digital bank licence.