Govt to curb 'family control' in banks

The interim government has taken an initiative to curb family domination in the banking sector with a view to reducing irregularities and corruption.

As part of the move, the Bank Companies Act is being amended, with plans to broaden the definition of 'family'.

At the same time, the number of directors from the same family will be limited, and the maximum tenure of directors will be reduced.

Bangladesh Bank has already drafted the Bank Companies (Amendment) Ordinance, 2025, and sent it to the finance ministry.

Officials at the central bank say that if the definition of family is broadened and the tenure of directors reduced, it will be difficult for any single family to dominate a bank. This is expected to reduce irregularities and corruption.

During the rule of the Awami League government, which was overthrown in the July mass uprising, various industrial groups—including S Alam Group, Beximco, Premier Group, and Sikder Group—were accused of maintaining control over multiple banks and financial institutions, engaging in large-scale irregularities and corruption.

Directors from these groups often placed their spouses, children, sons-in-law/daughters-in-law, and close relatives on the boards of banks.
Some banks under the control of these families are now in distress, with depositors unable to recover their money. The government is merging five banks, and the merged bank requires Tk 200 billion in capital from the state treasury, which comes from taxpayers’ money.

Bangladesh Bank says that one of the main purposes of this amendment to the Bank Companies Act is to establish full authority for Bangladesh Bank in regulating the country’s banking business, protect depositors’ interests, and ensure good governance in the banking sector.

The draft law is currently being reviewed by the financial institutions division of the finance ministry. However, the Bangladesh Association of Banks (BAB), the organisation of bank entrepreneurs, has provided its opinions on various clauses of the draft.

On this matter, finance adviser Salehuddin Ahmed told Prothom Alo last Thursday, “I have not gone through the draft in its entirety. As far as I know, this initiative has been taken for the benefit of the banking sector.”

Currently, there are 61 banks in the country, both public and private (five of which are in the process of being merged). These banks operate under Bangladesh Bank and according to the Bank Companies Act, accepting deposits from the general public. The central bank ensures that people’s money remains safe.

To curb family domination in the banking sector, the law is being amended in several key areas. One major change is expanding the definition of 'family' in the Bank Companies Act.

Under the current law, a section titled 'persons or institutions associated with a bank' lists family members. At present, family members include a person’s spouse, father, mother, son, daughter, brother, sister, and dependents. The draft proposes adding additional relatives, including sisters-in-law, nephews, parents-in-law, brothers-in-law and sisters-in-law (husband’s or wife’s siblings), and any dependents of the individual.

The Bangladesh Association of Banks (BAB) supports limiting the definition of family' to only spouses and dependents. The organisation cites examples from other countries: in India, family refers to spouses or the Hindu undivided family; in Pakistan, it includes spouses, direct dependents, and dependent siblings; in Sri Lanka, it only includes spouses and dependent children.

The draft law also proposes reducing the number of directors from the same family. Currently, a maximum of three members from the same family can serve on a bank’s board. The new rule proposes limiting it to two. BAB has suggested relaxing or removing this restriction, arguing that a carefully applied flexibility would allow boards to include more committed and attentive directors.

In 1996, a report by the Bank Reform Committee led by Professor Wahiduddin Mahmud recommended that multiple members from the same family should not serve on a bank board. Wahiduddin Mahmud is now a planning adviser.

Currently, directors can serve on a board for 12 consecutive years. The draft proposes reducing this tenure to six years. BAB recommends allowing a nine-year tenure, warning that a shorter term could reduce experience and send a negative signal in the banking sector.

Before 2018, the consecutive term for directors was six years. In 2018, it was increased to nine years, and in 2023, it was further amended to 12 years. The 2023 amendment to the Bank Companies Act sparked controversy and protest in Parliament. On 8 June 2023, then Finance Minister AHM Mustafa Kamal introduced the Bank Companies (Amendment) Bill-2023. The original proposal did not include any changes to the directors’ tenure, but prior to passing, MP Ahsanul Islam from the ruling party proposed extending the tenure to 12 years, which was approved.

Before its passage, MPs from the then ‘domesticated’ opposition, the Jatiya Party, protested strongly and even staged a walkout. Jatiya Party MP Mujibul Haque stated in Parliament that directors were the main culprits behind bank looting, citing the collapse of banks like National Bank and EXIM Bank due to chairmen and directors.

In 2023, under the Awami League government, directors affiliated with government-friendly bank owners were granted the opportunity to serve for 12 consecutive years. This was influenced by the leadership of the Bangladesh Association of Banks (BAB) at the time. Former BAB president and EXIM Bank chairman Nazrul Islam Majumdar is now in prison, and former Finance Minister AHM Mustafa Kamal has moved abroad.

Currently, a family can have an additional representative director on the board for up to two institutions or companies linked to or controlled by that family. The draft proposes reducing this to just one representative director to limit familial control.

The draft Bank Companies Act states that a bank’s board of directors will consist of 15 members, half of whom—50 per cent—will be independent directors. Currently, banks have 20-member boards, of which only three are required to be independent directors. The Bangladesh Association of Banks (BAB) has opposed the proposal, suggesting that the number of independent directors could be two or three. They argue that having half the board as independent directors would reduce the control of shareholders and shift the focus from profit and growth to mere compliance in bank management.

However, the governor of Bangladesh Bank said that the number of independent directors would be eight. He added that it would be better if the entire board could be composed of independent directors.

To prevent political interference in bank management, Bangladesh Bank has also proposed a provision barring ministers, MPs, or local government representatives from serving on boards of directors.

Currently, appointments, reappointments, promotions, terminations, dismissals, and removals of a bank’s Managing Director (MD), Chief Executive Officer (CEO), or directors require Bangladesh Bank approval. Specialised banks, such as Bangladesh Krishi Bank and Rajshahi Krishi Unnayan Bank (RAKUB), are exceptions, as the government handles appointments there. The draft law proposes that for uniformity, even MDs, CEOs, or directors of specialised banks will require Bangladesh Bank’s approval.

Currently, the requirement to become an MD, CEO, or director is 10 years of managerial, business, or professional experience. The draft proposes increasing this to 15 years.

Ahsan H Mansur, Governor of Bangladesh Bank, told Prothom Alo on Thursday, “We want the ordinance to be passed by next month.”
In 2023, the Bank Companies Act included a provision regarding “wilful default borrowers.” The draft proposes removing this provision. Explaining the reason, the Governor told Prothom Alo that the key issue is whether a borrower can repay the money; there is no need to label it as “wilful.”

Currently, the law allows Bangladesh Bank to stop a bank from taking new deposits if it is being run in a manner contrary to depositors’ interests. The draft law adds that Bangladesh Bank can also prohibit such banks from providing new loans. A new provision in the draft states that Bangladesh Bank can stop a bank from providing new loans, making investments, or extending capital to its affiliated institutions.

The Governor of Bangladesh Bank said, “Considering the interests of depositors, we felt that new lending should also be stopped. That is why this proposal has been made.”

The draft Bank Companies Act also stipulates that, without bank approval, directors of a debtor company cannot resign, be dismissed, removed, or relieved from their positions, nor can they transfer or sell any shares.

A new provision allows Bangladesh Bank to cancel a bank’s board of directors in cases of misuse of bank funds, money laundering, or financing terrorism. The bank may extend the period of a cancellation order, but not beyond two years. The current rule has been removed, and now after board cancellation, Bangladesh Bank may assign certain individuals to exercise all powers and responsibilities of the board. The order will remain valid for the term specified in the appointment letter, though Bangladesh Bank may adjust the period. The new board appointed by Bangladesh Bank will serve a maximum of three years.

Mostafa K Mujeri, former Chief Economist of Bangladesh Bank, told Prothom Alo that in the past, directors were often involved in irregularities and corruption in the banking sector. Increasing the number of independent directors on a board will make it difficult for them to commit such irregularities. However, competence, acceptability, and prudence should be considered when appointing independent directors.

Mostafa K Mujeri considers it appropriate that the draft law limits consecutive terms of directors to six years, restricts the number of directors from the same family to two, broadens the definition of family, and requires Bangladesh Bank’s approval for appointments of chairmen, directors, and MDs in specialized banks. Regarding the broader definition of family, he said, “I believe this will restore good governance in the banking sector.”