Limits on family participation, shareholding and directors’ tenure risk investor confidence

The proposed limitations on family participation in board, shareholding and directors' tenure in the draft amendment of Bank Company Act risk investor confidence, said Hossain Khaled, chairman of City Bank. 

He urged the Bangladesh Bank for careful review on proposed reduction of family representation on boards — from three to two members.

In an interview with TBS, Hossain instead suggested that the central bank prioritise independence, disclosure and accountability over numerical limits. 

Citing his organisation as an example, Hossain said the Bangladesh Bank recognised City Bank as the Best Sustainable Bank in the country — a reflection of strong governance and long-term vision.

The bank is introducing internationally recognised practices, such as a formal board evaluation framework to further strengthen effectiveness and accountability, he said. 

Addressing excessive default loans as a major challenge in the banking sector, he said Bangladesh Bank's stricter NPL guideline, aligning with global practice, is a necessary step for restoring credibility. 

However, he suggested a gradual transition, giving SMEs (Small and Medium Enterprises) some breathing space, and applying the rules uniformly to restore discipline without hurting small businesses.  

Sharing future plans, he said their goal is to make City Bank Bangladesh's next $1 billion market-cap bank, powered by people, digital platforms, SME growth, and sustainable finance.

How does City Bank ensure corporate governance on its board, given the prevalence of poor governance and family control in other banks?  

It is true that our country's banking sector has faced challenges around governance, transparency, and board accountability. But at City Bank, we have made it a priority to treat corporate governance not as a compliance issue, but as the very foundation of how we operate.

Our board reflects this approach. Alongside family representatives, it includes diverse shareholder groups, qualified independent directors, and global institutions such as the IFC — a member of the World Bank Group and our largest shareholder. Their presence ensures that international standards of governance are embedded into our practices.

We maintain strict independence of our independent directors, enforce a clear conflict-of-interest policy, and ensure full transparency in related-party transactions. Our internal controls and risk management frameworks are independently overseen, so that monitoring and mitigation remain robust and credible.

We are introducing internationally recognised practices like a formal board evaluation framework to further strengthen effectiveness and accountability.

These steps are already bearing fruit. 

Bangladesh Bank recognised City Bank as the Best Sustainable Bank — a reflection of our strong governance and long-term vision. For us, governance is not just policy — it is the driver of our sustainable success. Good governance is not just a banking requirement; it is Bangladesh's biggest competitive advantage in attracting global investors. At City Bank, we want to set that benchmark.

What is your perspective on excessive NPLs?  

Excessive NPLs are the biggest drag on our banking system. They block new credit, drain profitability, and most importantly, erode public trust. By early 2025, reported defaults had crossed Tk4.2 lakh crore — almost a quarter of all loans — and in state banks, the ratio is above 40%. That places Bangladesh among the worst in Asia.

This crisis didn't emerge overnight. It grew from years of evergreening, lenient rescheduling, and weak governance. The IMF has rightly stressed that without discipline and transparency, stability will remain elusive.

Bangladesh Bank has now stepped up: with a Bank Resolution Ordinance, stricter wilful-defaulter rules, and independent audits. These are strong tools, but the real test is applying them fairly to all banks.

My view is clear: Admit the problem fully, enforce discipline consistently, and only then can we restore confidence, strengthen credit flows, and move forward. 

At City Bank, we have shown that disciplined lending and digital monitoring can keep NPLs well below the industry average — proving that with governance and accountability, stability is possible.

The Bangladesh Bank's stricter NPL guideline aligns with international practice, despite opposition from the business community due to financial constraints. What are your thoughts on this from a business perspective?  

Bangladesh Bank's stricter NPL guideline, aligning with global practice, is a necessary step for restoring credibility. Moving to a 3-month classification regime and uniform provisioning rules ensures greater transparency and brings us closer to international standards. It also reassures our development partners, including the IMF, that Bangladesh is serious about addressing defaults.

But from a business perspective, we must acknowledge the strain. Many firms, especially SMEs, are still recovering from inflation and supply chain shocks. Overnight tightening risks pushing otherwise viable borrowers into default. Banks, too, will face capital erosion as provisioning rises. Some even fear the official NPL ratio could jump to 30-40%.

So the principle is correct, but the pace must be pragmatic. Discipline cannot come at the cost of destroying businesses that are otherwise sound. If we allow a gradual transition, give SMEs some breathing space, and apply the rules uniformly, then the new framework can both restore confidence in our banks and keep credit flowing to the real economy. If reforms are paired with targeted SME support and a phased transition, we can strengthen discipline without hurting businesses that are otherwise healthy.

The proposed reduction of family representation on boards — from three to two members — needs careful review. Given the Act's broad definition of 'family,' this may unintentionally exclude capable professionals, discourage long-term investment, or even encourage proxy representation, which runs counter to the goal of transparency.

Bangladesh Bank will change the Bank Company Act to decrease family control and director tenure. How do you perceive this move as a bank director?  

I welcome Bangladesh Bank's initiative to strengthen corporate governance through amendments to the Bank Company Act. Oversight must be strengthened, particularly to address systemic challenges such as rising non-performing loans.

At the same time, it is important to recognise that family involvement in bank ownership or governance is not inherently a weakness. When practised transparently and within a robust regulatory framework, responsible family participation can provide long-term commitment, enhance investor confidence, and support sustainable growth. 

Globally, many successful banks have thrived under family-led stewardship while upholding strong governance standards.

The proposed reduction of family representation on boards — from three to two members — needs careful review. Given the Act's broad definition of 'family,' this may unintentionally exclude capable professionals, discourage long-term investment, or even encourage proxy representation, which runs counter to the goal of transparency.

Similarly, blanket restrictions on director tenure and shareholding should be guided by empirical evidence to ensure they truly improve governance. Otherwise, such limits risk disrupting continuity and eroding depositor and investor confidence.

In my view, real reform should prioritise independence, disclosure and accountability. These principles, more than numerical limits, are the foundations of strong corporate governance. The issue is not family or non-family — the issue is accountability and disclosure. In markets like India and Singapore, family involvement works under strong oversight. Bangladesh should aim for that balance.

For foreign strategic investors to step in meaningfully, we need to demonstrate clarity — fair valuation, transparent processes, regulatory strength, and alignment with development goals. If we get that right, I believe bringing in foreign partners into certain banks could accelerate modernisation, restore confidence, and help inject capital where domestic sources fall short.

How do you see the current financial reform efforts? 

I see the current reform efforts as painful but absolutely necessary. For too long, problems in our banking sector were hidden — now, with stricter loan classification and oversight, we are finally facing reality.

Yes, the challenges are huge — the IMF says it may take $35 billion to fully restore the system — but international partners like the World Bank and ADB are backing us, and deposit growth shows public confidence is beginning to return.

The real test is execution. Announcing reforms is the easy part; delivering them, resisting vested interests, and staying disciplined is the hard part.

If we stay the course, these reforms will restore trust — trust of depositors, investors, and the public — and give Bangladesh a stronger, more resilient financial system for the future. If reforms are executed firmly and fairly, Bangladesh can unlock the full potential of its private sector and restore trust in finance as the engine of growth.

Bangladesh Bank is seeking foreign strategic investors for certain banks. How do you see the increased involvement of foreign investors in the country's banking sector?  

Look, the numbers show that foreign investors are returning — we saw a strong rebound in FDI in early 2025, especially in equity and intra-company financing. That suggests investor appetite is reviving.

But the banking sector is a special domain. For foreign strategic investors to step in meaningfully, we need to demonstrate clarity — fair valuation, transparent processes, regulatory strength, and alignment with development goals.

If we get that right, I believe bringing in foreign partners into certain banks could accelerate modernisation, restore confidence, and help inject capital where domestic sources fall short.

But again, the key is cautious, selective entry — use these investors where they add real value, not just as a short cut to capital. Our own experience with IFC shows how foreign partners can be resourceful bringing capital, knowledge, discipline, and credibility. That model, if applied carefully, can strengthen the entire sector.

How will City Bank differentiate itself from other banks?  

City Bank will stand apart in three very clear ways.

First, digital innovation. We were the first to introduce truly digital loans in Bangladesh, partnering with bKash. Already more than Tk. 4,000 crore has been disbursed to over fourteen lakh customers directly through the app, no paperwork, no branch. We also launched 'Pay-Later 'for instant, interest-free purchasing — and we are leading in tap-and-pay, QR, and contactless payments. These innovations make us more than a bank — we are becoming part of the daily financial life of our customers.

Second, global partnerships and premium banking. We remain the exclusive partner of American Express in Bangladesh, and this year we launched the country's first Amex metal card. These products reinforce our leadership in premium banking, while digital platforms like Citytouch keep us strong in retail and SME.

Third, sustainability and governance. Bangladesh Bank recently ranked us the number one sustainable bank in 2024, and for five years we have stayed in the top-10 sustainability ranking. What strengthens us further is our governance structure — the IFC is our single largest shareholder and has a seat on our Board. This brings global best practices in oversight and accountability, and ensures we maintain international standards in governance and compliance.

So in short, where others are trying to catch up, City Bank is already leading — in digital finance, global partnerships, and sustainability with world-class governance. That's how we will differentiate ourselves, not just today but for the future of banking in Bangladesh. Our ambition is for half of all our SME lending to be digital by 2027. That is how we will prove that Bangladeshi banks can lead with innovation, not follow.

What is your future plan for City Bank?  

Our vision for City Bank is very clear — to evolve from being just a bank into a platform-driven financial ecosystem.

We are accelerating AI-led digital transformation, starting with a major revamp of our Citytouch platform in partnership with a UAE fintech. This will make banking smarter, faster, and more personal, while keeping security and trust at the core.

On the capital side, we are preparing to issue Tk800 crore bonds and expanding non-interest income through products like Bancassurance and fee-based services.

SMEs will remain a big focus. With IFC's $50 million investment, we are scaling financing for small businesses across the country, while building partnerships in supply chain finance and digitized lending.

We are also committed to sustainability. Our Sustainable Infrastructure Project will finance green energy, climate-resilient projects, and eco-friendly businesses — ensuring growth is responsible and future-proof.

At the same time, we are investing in the future of banking itself by becoming a sponsor in a proposed fully digital bank. This gives us a stronghold in both traditional banking and pure digital play.

Finally, governance will remain our backbone. With IFC as our single largest shareholder and on our Board, we benefit from world-class oversight and global credibility. Our goal is to make City Bank Bangladesh's next $1 billion market-cap bank, powered by people, digital platforms, SME growth, and sustainable finance.

What is your suggestion to restore discipline in the banking industry, based on past experiences?  

Restoring discipline in our banking sector requires more than new rules — it requires consistent enforcement and cultural change.

First, regulators must use their new powers firmly and impartially. The recent Bank Resolution Ordinance 2025 gives Bangladesh Bank authority to intervene, merge, or even close failing banks. This must be applied without exceptions, showing that no institution is above accountability.

Second, governance must be depoliticised. Bank boards should be filled with professionals of integrity and competence, not political appointees. Strong, independent audit and risk committees are critical to ensuring discipline in credit decisions.

Third, loan culture must change. Easy rescheduling of defaulted loans has weakened discipline. We need tighter single-borrower limits, stricter approval processes, and real accountability of senior management for defaults.

Fourth, transparency is essential. Banks must follow international standards for loan classification and provisioning so that non-performing loans are reported honestly. Only then can we fix problems rather than hide them.

Finally, recovery and consequences matter. Fraud and willful default must be met with swift legal action, while honest, well-governed banks should be incentivised. Discipline is not just a banking issue — it is the foundation of trust in Bangladesh's economy. If we combine strong regulation with strong governance, the culture of discipline will return.