Bangladesh Bank limits corporate shareholding in banks to net worth

The Bangladesh Bank today (17 September) imposed strict new limits on corporate shareholding in commercial banks and tightened eligibility rules for representative directors, aiming to enhance transparency and protect depositors.

Under a new circular issued by the central bank, corporate entities can no longer hold shares in single or multiple bank-companies exceeding their own net worth, based on acquisition cost. Companies currently holding bank shares above this threshold have been given six months to adjust their portfolios to comply with the limit.

The central bank also introduced stringent ownership rules for corporate nominees sitting on bank boards. A representative director nominated by a shareholder company must serve as its managing director or director, and must hold an equity stake of at least 2% in a listed public limited company, or 20% in other types of companies.

"These measures are designed to ensure transparency and stability in bank ownership structures, reduce disproportionate investments relative to shareholder companies' financial capacity, and protect depositor interests," a senior BB official said.

Under the directive, which took effect immediately, banks are required to seek prior approval from the central bank for any appointments, re-appointments, or changes of representative directors, submitting proof of the nominee's equity stake.

Central bank officials said there had previously been instances where banks controlled by various business groups, including S Alam Group, appointed nominee directors on behalf of shareholder companies who were employees or officials of the respective business groups.

This raised questions over the independence of nominee directors, their representation of the actual ownership interests and their accountability. In several cases, there were also allegations that the interests of the business groups were given priority on the banks' boards through such directors.

They said the new conditions have been introduced to ensure the nominee director has a genuine ownership and interest relationship with the shareholder company and to prevent individuals from gaining a seat on a bank's board solely because they are officials or close associates of a particular business group.

At the same time, making it mandatory for nominee directors to have their own shareholding will make it easier to verify in whose interests an individual is representing a shareholder company on a bank's board in the future, said the officials.