Finance ministry softens bank law reforms aimed at curbing family control

Infograph: TBS

The finance ministry is watering down proposed amendments to the bank company law meant to curb family control of banks. Although the current 12-year continuous tenure for a director is to be reduced to nine years, the limit of three directors from one family will remain the same.

In its latest draft, the Bangladesh Bank had proposed cutting the number of directors from one family to two and the maximum consecutive tenure from 12 years to six. The Financial Institutions Division of the finance ministry has rejected both proposals.

According to division sources, the central bank has been told to revise the draft Bank Company (Amendment) Act 2026 after consulting the Bangladesh Association of Banks (BAB) and other stakeholders, keep the existing provisions on family representation and tenure, and resubmit it to the ministry.

Rules on directors with defaulted loans are also being relaxed, and changes are being considered to Bangladesh Bank's power to dissolve a bank's board. The central bank has been directed to finalise the draft with these changes, the sources said.

The decisions were taken at a review meeting on 20 September chaired by Nazma Mobarek, secretary of the Financial Institutions Division. According to the minutes, seen by The Business Standard, participants agreed to keep the provision allowing up to three members of the same family to serve on a bank's board at the same time. They also agreed to shorten the term to nine years from the current 12 years.

Representatives of 17 bodies attended, including the Law and Justice Division, the National Board of Revenue, the Bangladesh Securities and Exchange Commission, BAB, Bangladesh Bank, Sonali Bank, Bangladesh Krishi Bank, FBCCI, BGMEA and BKMEA. People familiar with the meeting said participants agreed to relax some of the stricter proposals, citing shareholders' interests, the normal functioning of banks and business stability.

Former governor warns of 'family banks'

Ahsan H Mansur, a former Bangladesh Bank governor, told The Business Standard the draft amendments had been prepared in line with international standards.

"During the Awami League period, bank owners who supported the party bypassed all the rules of business and got a law passed through members of parliament allowing three members of the same family to sit on a bank's board and a director to remain for 12 consecutive years. Bangladesh Bank did not support this at the time either," he said.

He said the amendments were meant to end a culture in which an individual or family could regard a bank as its own.

"If these amendments are not made, ensuring good governance in the banking sector will be hindered. Previously, businesses backed by the Awami League controlled the banks. Now businesses backed by the BNP will control them. The banks will be turned into family banks," he said.

He also questioned the continued role of the Financial Institutions Division, saying abolition had been discussed repeatedly and that the BNP's election manifesto had promised it.

Defaulting directors: easier rules

Under the existing law, a director has two months to regularise a loan taken in their own name or one they have guaranteed. If the loan is not regularised in that time, the director loses their position and their shares are sold to settle the debt. A director can return to the same bank or another after one year from repaying the loan, provided a board seat is available.

Bangladesh Bank had proposed that a director should also lose their position if a company in which they had an interest defaulted. That proposal is being dropped.

The waiting period before a director can return to a board is being cut to six months, division sources said.

Bank owners have also asked for at least six months to regularise a loan after receiving a notice, and for more time to sell shares to settle the debt. Division officials said the provisions would be reviewed further before the draft is finalised.

People familiar with the meeting said participants agreed to reconsider and relax some of the proposed stricter provisions, taking into account shareholders' interests, the normal functioning of banks and business stability.

Family-control curbs softened

Bangladesh Bank began the amendments to strengthen governance and curb family dominance in banking.

Under Section 15(10), up to three members of the same family can sit on a bank's board at once, and representative directors can be appointed for up to two companies or institutions linked to or controlled by the family.

BAB and other stakeholders pushed to keep the three-director limit, rejecting the proposed cut to two.

On tenure, the tenure limit was raised from six to 12 years in 2018. The 12-year term was retained in the 2023 amendment. A director can return after 12 years following a three-year cooling-off period. BAB opposed the six-year proposal, arguing that a sharp cut could deprive boards of experienced directors. The meeting also backed retaining directors with long-standing banking experience.

Three inter-ministerial meetings were held on 8 April, 22 April and 12 July after the current government took office. Bangladesh Bank then incorporated changes based on those discussions and sent the draft to the Financial Institutions Division.

No cap proposed for strategic investors

The draft proposes removing the existing limit, 10% of a bank's paid up capital, on strategic investment in banks, while requiring government approval for such investments.

The proposal is linked to the need for substantial long-term capital for Sammilito Islami Bank, formed through the merger of five troubled banks. The government has formally approached Qatar to become a strategic partner and is preparing to approach other Muslim-majority countries and international Islamic financial institutions, an official said.

Strategic investors are expected to provide large amounts of long-term capital and to have a direct role in a bank's governance and decision-making, the official said. "For this reason, no specific limit has been set on their investment," the official said, adding that several other banks might need similar investment in the future.

Administrator without dissolving board

Changes are also being considered to Section 47 of the Bank Company Act, which allows Bangladesh Bank to dissolve a bank's board if its activities are deemed harmful to depositors or the bank. 

The central bank can then appoint an administrator or another suitable person to run it.

The review meeting decided to further relax this provision.

Officials said the provision, though long-standing, had rarely been used. After August 2024, Bangladesh Bank dissolved several bank boards, exposing difficulties in applying the provision, particularly over removing shareholder-elected directors. 

The amendments are expected to clarify the issue.

A new provision may also allow an administrator to take charge while keeping the existing board in place, giving the regulator an alternative to fully dissolving a bank's board.

Other proposed changes

The draft also proposes broadening the definition of "family" to prevent members of the same family from sitting on a bank board by presenting themselves as different types of relatives.

It also proposes increasing independent directors' share to up to 50%.

A senior Financial Institutions Division official said Bangladesh Bank had been asked to finalise and resubmit the revised draft quickly. It will then undergo Law Ministry vetting, cabinet committee approval and parliamentary consideration.

"The law may be placed for passage in the next session of parliament," the official said.