The Bank Company Act Amendment: Real change or another paper promise?
The proposed amendments to the Bank Company Act promise to curb family dominance, cut director tenures, and ban political influence. Yet unless regulators are independent and enforcement is strong, Bangladesh risks repeating a familiar cycle of reform without results
A long history of creeping privatisation of governance, primarily through extended tenures and familial dominance, has crippled Bangladesh's banking sector. The latest draft of the Bank Company Act marks a hopeful departure: it trims tenure, limits family members, and bars political influence. But can it truly reform, or will power find its way back in?
For more than two decades, Bangladesh's Bank Company Act has been amended, re-amended, and selectively enforced, each time shaping the delicate balance between board independence and entrenched control. What emerges from this history is not just a story of legislative tweaks, but a sobering lesson in how governance systems can be captured by the very people and interests they are supposed to oversee and restrain.
The latest proposed amendments to the Bank Company Act — limiting family members on bank boards to two, cutting directors' tenure from 12 to six years, barring political figures, and tightening definitions of loan defaulters — appear bold.
On paper, they could rebalance power, diversify board voices, and restore public trust. But without the efficacy of governance mechanisms, and the capacity and will to implement them, these reforms risk becoming another chapter in Bangladesh's long record of diluted governance.
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History of Bank Company Act Amendments
Over the years, these amendments concentrated power in the hands of a few, limited opportunities for fresh leadership on boards, and weakened the safeguards that were meant to ensure accountability. The proposed 2025 amendments are an attempt to restore earlier safeguards, but history suggests they could just as easily be diluted in the future.
Since 2003, amendments to the Bank Company Act have repeatedly shifted the balance of power in Bangladesh's banking sector. That year, the six-year cap on director tenure was removed, effectively opening the door for indefinite control by entrenched families and sponsors.
A decade later, in 2013, the cap was reinstated, but with incumbents given an additional six years — a cosmetic restraint that in practice allowed directors to serve for 12 years.
In 2018, tenure was extended to nine years while the cap on family representation on bank boards was raised from two to four, institutionalising dynastic dominance and further reducing opportunities for board renewal.
By 2023, tenure was stretched even further to 12 years, with the family cap lowered slightly to three — a minimal change that left long-term control intact.
The proposed 2025 amendments mark a sharp departure: tenure would be brought back down to six years, the family cap reduced to two, political figures barred altogether, and stricter rules on shareholding and loan defaulters introduced. On paper, this package carries significant reform potential, but only if it is enforced rigorously.
Independent directors: Independence in name only?
A central feature of any strong governance framework is the presence of truly independent voices on the board. Independent Directors (IDs) are intended to serve as the conscience of the boardroom — offering impartial oversight, protecting minority shareholders, and ensuring fiduciary duty to depositors.
Yet in Bangladesh's banking sector, this safeguard too often exists only on paper. Many IDs are appointed for their loyalty rather than their governance expertise. Some lack access to complete financial information, while others are hesitant to challenge entrenched interests for fear of non-renewal. Without statutory protection, transparent selection, and meaningful authority, Independent Directors risk becoming silent observers rather than active guardians.
The nexus that resists reform
The weakening role of IDs is not isolated, but part of a broader pattern. The governance challenges facing banks are not simply about term limits or family representation; they stem from the nexus linking family-controlled conglomerates, sponsor shareholders, and political connections.
- Family-controlled conglomerates often hold significant shares across multiple banks.
- Sponsor shareholders benefit from concentrated decision-making and preferential access to resources.
- Political linkages temper regulatory action and shield boards from scrutiny.
This network enables preferential lending, undermines credit discipline, and fosters a culture of impunity. The proposed bar on political figures joining boards is an important step, but without addressing related-party representation — such as immediate family members of politicians — the underlying influence will remain. Political influence, in practice, can simply continue by proxy.
Why governance efficacy matters more than reform
The difference between a functional law and a failed one lies in enforcement. The Bank Company Act's history shows that:
- Safeguards can be reversed under pressure.
- Compromise reforms often leave core problems untouched.
- Regulators' legal powers mean little without political independence.
In banking, governance efficacy is the firewall against systemic risk. It ensures credit decisions are based on merit, brings fresh perspectives into leadership, builds investor confidence, and protects depositors from reckless practices.
Recommendations for sustainable change
For the 2025 amendments to succeed, they must be anchored in deeper systemic shifts:
- Strengthen regulatory enforcement by giving Bangladesh Bank clear authority to disqualify non-compliant directors and require public disclosure of board composition and affiliations.
- Appoint IDs transparently through processes involving minority shareholders; protect them from arbitrary removal as well as unnecessary legal harassment.
- Enhance transparency by publishing related-party transactions above a set threshold and disclosing director tenure histories.
- Regulate cross-ownership by capping shareholdings across multiple banks by the same family or group; monitor indirect holdings via nominees.
- Address political influence in practice by extending exclusion to the immediate family of elected officials and imposing cooling-off periods for ex-politicians and regulators.
A reform's real test
The proposed 2025 amendments offer a rare opportunity to reverse years of governance dilution and failure. But laws, no matter how well written, cannot protect the banking sector if enforcement is weak or selective.
Breaking the cycle will require more than statutory change; it will demand political will, regulatory courage, transparent processes, and a cultural shift in how board membership is viewed. It is not a family entitlement or political reward — it is a fiduciary duty to the public and the economy.
Laws can be passed in a day. Effective governance takes years to build. If Bangladesh wants banks that serve the economy rather than the few who control them, it must choose enforcement over symbolism, independence over loyalty, and public trust over private gain. Only then will the Bank Company Act be more than words on paper — and only then will our banks truly serve the nation
The author is a Professor of IBA, Dhaka University and can be reached at melitamehjabeen@gmail.com.
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinions and views of The Business Standard.
