Same beneficial owners sit on boards of two banks, bypassing law

Some influential businesspeople are simultaneously holding directorships in more than one private commercial bank, effectively bypassing the law and "Ultimate Beneficial Owners (UBOs)" circular of the Bangladesh Bank.

Take the case of Ha-Meem Group Managing Director AK Azad. He serves as the chairman of Shahjalal Islami Bank, where he owns 3.8% of shares. At the same time, his company, That's It Fashions Ltd, holds 3.5% shares in Pubali Bank and has a seat on its board through Nominee Director Md Abdur Razzak Mondal.

This arrangement appears to circumvent the amended Bank Company Act, which prohibits an individual from holding directorships in more than one bank or non-bank financial institution. The law also bars a person from acting as a representative director on behalf of a company shareholder if that person already holds a board position in another bank.

Regulatory officials, however, have so far remained tight-lipped about how such dual roles continue without intervention. Experts say this kind of circumvention undermines the very intent of the reforms aimed at ensuring governance and preventing concentration of control in the banking sector.

Muhammad A (Rumee) Ali, former deputy governor of the Bangladesh Bank, said that in legal and ethical considerations, the spirit of the law often takes precedence over its literal wording.

While the letter of the law refers to strict textual interpretation, the spirit reflects the law's underlying intent and moral purpose, said Ali, also the chairman of the Commission on Banking of the International Chamber of Commerce Bangladesh.

He said as per the UBO circular, a person or a company cannot hold directors in two banks, even by nominating a representative in the name of a company.

Not only AK Azad, but also many other bank directors are holding shares in multiple banks through ultimate beneficiary ownership. But the Bangladesh Bank remained silent even after issuing the UBO circular, said industry insiders.

The Bangladesh Bank introduced "Identification of Ultimate Beneficial Owners (UBOs) and Disclosure of Ownership Structure of Banks" on 1 December 2024 to strengthen its supervision and bring transparency in the ownership structure of banks.

However, it did not take any action even after knowing the directors who are holding directorships in more than one bank as UBOs, ignoring the Bank Company Act.

The UBO circular was issued following the S Alam Group's shareholding in eight banks through complex chains and layers of ownership, making it difficult for regulators and supervisors to trace the ultimate beneficial owners of a bank.

"Non-transparency in a bank ownership structure hinders the reliable identification of the bank's beneficial owners, the assessment of its owners' suitability, the quality verification of the bank's capital, and the proper identification of all related parties," said the circular.

"Against this backdrop, financial sector regulators and supervisors in many jurisdictions are giving increasing emphasis on bringing enhanced transparency in banks' ownership structure," according to the circular.

A senior executive of a private commercial bank said the objective of the UBO circular is to identify the directors who hold directorships in more than one bank through their business entities. However, they did not see any action since the circular was issued, he added.

If bank directors still can have shareholding in multiple banks as UBO, then why S Alam's control on multiple banks as UBO will be illegal, he questioned.

When asked, AK Azad said he no longer holds any stake in That's It Fashions Ltd, the company that owns shares in Pubali Bank and holds a directorship on its board. 

However, the BGMEA member list shows Abdul Kader Azad, widely known as AK Azad, as the managing director of the company.

A senior official of Ha-Meem Group on condition of anonymity told TBS that That's It Fashions Limited is a sister concern of the Group.

What banking law says

Bank Company Act, Section 23 states: "No person who is a director of a banking company shall, at the same time, be a director of any other banking company, financial institution, insurance company, or any subsidiary company of such companies, or, in the opinion of the Bangladesh Bank, any such company or institution that exercises control, joint control, or significant influence over the said banking company, financial institution, or insurance company."

It also states, "No natural person shall be appointed as a representative director on the board of directors of a banking company on behalf of any other person (shareholder)."

It adds, "Furthermore, there shall be no director of a banking company who has been appointed as a director on behalf of any other banking company, financial institution, insurance company, or any subsidiary company of such companies, or, in the opinion of the Bangladesh Bank, on behalf of any such company or institution that exercises control, joint control, or significant influence over the said banking company, financial institution, or insurance company."