Bureaucratic resistance delays Bangladesh Bank reform

Highlights:

• Central bank autonomy amendment approved, stalled awaiting finance ministry approval
• Bureaucratic resistance over board composition and pay structure delayed reforms
• Bankers urge swift legal changes to prevent political interference
• Governor appointments, removals to follow independent, transparent process
• IMF-backed reforms limit government, family influence in banking
• Bank Company Act targets governance failures, political directors, family dominance

The Bangladesh Bank's board approved a draft amendment to the Bangladesh Bank Ordinance 2025 in October as part of efforts to ensure the central bank's autonomy, but the amendment has yet to be implemented, even after three months, due to delays in obtaining final approval from the finance ministry.

The proposed changes to key appointments – particularly, the exclusion of government representatives from the central bank's board – have reportedly caused discontent among bureaucrats, contributing to the delay, according to an insider.

Against this backdrop, bankers at a meeting with the Bangladesh Bank on 11 January demanded swift implementation of legal reforms, including amendments to the Bank Company Act and the Bangladesh Bank Ordinance, to prevent a recurrence of the political interference seen under the previous regime.

During the meeting chaired by Bangladesh Bank Governor Ahsan H Mansur, bankers raised questions about the delay in implementing legal reforms. Nazma Mobarek, secretary of the Financial Institutions Division, was present at the meeting as the government representative.

Asked whether the central bank faced any political resistance in implementing the legal reforms, Governor Mansur told TBS that there had been no political interference, but some bureaucratic resistance on certain issues.

Infograph: TBS

He said the key changes to the Bangladesh Bank Ordinance relate to the appointment and removal of the governor and deputy governors, board composition, and pay structure.

Mansur said the appointment and removal of top management would be conducted through an independent committee to ensure transparency and independence, noting that a political government would no longer be able to remove top officials solely through a notice and would instead have to follow due process.

Speaking to TBS on condition of anonymity, a managing director of a private commercial bank said the question was directed at the secretary, but she did not respond and left the meeting abruptly.

This was the first time a government representative had attended a bankers' meeting, but she left after bankers raised issues related to legal reforms, said the banker, warning that without the implementation of legal reforms to strengthen the central bank's autonomy, corruption in the banking sector could be repeated.

When contacted, Nazma Mobarek said a meeting was scheduled for 16 January to discuss the Bank Company Act and that work was underway on the Bangladesh Bank Ordinance.

The Bangladesh Bank's move to amend the Ordinance, in line with recommendations from the IMF, aims to shield the central bank from political interference and bring its governance in line with global best practices.

The draft amendment initially excluded government representatives from the central bank's board in line with international practice. At present, the Bangladesh Bank board includes three government representatives, a structure the governor said is not followed by any other central bank worldwide.

However, he said the Bangladesh Bank later included one government representative in the final draft, a move that drew objections from the IMF. "Despite the IMF's objection, we retained one government representative on the board, considering Bangladesh's context," he added.

Regarding pay structure, the governor said the draft amendment proposes an independent pay scale, a practice followed globally. He noted that the Bangladesh Bank earned a profit of Tk24,000 crore in 2025 – the highest among any organisation in the country.

"The central bank should therefore have an independent pay structure, with salaries higher than government levels but lower than those in private sector banks," he said, adding that while there is bureaucratic resistance over pay scale and board composition, the government is working to address the concerns.

On the proposed amendment to the Bank Company Act, the governor said some bank directors had opposed the requirement for 50% independent directors on boards. However, he argued that the provision ultimately benefits owners, as stronger governance improves bank performance.

Citing BRAC Bank as an example, he said the bank operates with 50% independent directors and has become one of the country's top-performing banks. The amendment, he added, would also reduce family dominance on boards, noting that bank owners have already seen how excessive family control has damaged institutions in the past.

Key reforms under amended Bangladesh Bank Ordinance

According to the draft, under a "double-layer" system for governor's appointment, a search committee will be formed, and the president will give the final approval. Decisions will be taken by a majority vote of the members present at the search committee meeting, and in the event of a tie, the presiding member will have the power to cast a second or casting vote.

The committee will include a former finance minister (chairperson), a former Bangladesh Bank governor or deputy governor, the comptroller and auditor general, the chairperson of the Public Service Commission, and two eminent citizens with expertise in economics, banking, or finance – at least one of whom must be a woman. 

The governor's post will be upgraded from secretary to ministerial status.

The government will be legally restricted from dismissing the governor at will; the governor can only be removed through the same process used for removing a Supreme Court justice, which is a complex constitutional procedure.

The governor, deputy governors, and non-executive directors can only be removed by the Supreme Judicial Council for disqualification or gross misconduct.

The draft introduces major changes, including the restructuring of the Bangladesh Bank's board and the Monetary Policy Committee, with limited government officials' involvement.

It also clearly defines the Bangladesh Bank's mandate to ensure price and financial stability, granting it full policymaking, financial, operational, and personnel autonomy. Under the proposed ordinance, the Bangladesh Bank will become a statutory organisation.

The bank will manage its budget, allocate profits, and oversee monetary policy, financial supervision, and foreign exchange without interference. Direct government financing is restricted. Interest rates will be set by an independent Monetary Policy Committee.

The board will comprise the governor, two deputy governors, one government representative and five or six independent non-executive members with at least 15 years of relevant professional experience.

The ordinance was prepared in line with IMF recommendations as part of its $4.7 billion loan package, aiming to provide legal safeguards for the Bangladesh Bank's institutional, functional, financial, and personal autonomy, shielding it from undue political and private sector influence.

Major changes in the Bank Company Act

The Bangladesh Bank proposes limiting the number of directors from a single family and their affiliates on bank boards from five to two, and cutting a director's continuous term from 12 years to six, in a move to curb family influence in bank management.

Such dominance by certain board members has crippled the country's banking sector over the past 15-20 years, particularly during the Sheikh Hasina regime, leading to rampant loan scams, rising non-performing loans, and loss of public funds and trust.

Conglomerates such as S Alam gained control of multiple banks and withdrew thousands of crores of taka, much of which was allegedly laundered out of the country.

The central bank, in the final draft amendment of the Bank Company Act, also proposes to bar political figures from boards, ease foreign investors' shareholding limits, restrict one person from holding large stakes in multiple banks, and treat general and wilful defaulters equally.

The proposed draft amendment prohibits political figures – particularly government ministers, members of parliament, and mayors of city corporations – from serving as bank directors.

It also reduces the maximum number of directors in a bank company from 20 to 15 and requires that at least 50% of board members be independent directors, appointed from a panel prepared by the Bangladesh Bank.