Bank owners active to grab advantages in the election year

Influential bank owners are once again preparing to press home their demands to extend the tenure of the bank directors by another three years. They have already submitted a proposal to the higher echelon of the government to raise the tenure to 12 years from existing nine. Earlier, the government extended the tenure of directors to nine years from six before the parliamentary elections in 2018. At the same time, the government allowed a provision in an amended act that said four instead of two members of a family could be bank directors. The amendment to the bank company act was initiated only at the behest of the owners.

The act is once again set to be amended when the 12th parliamentary election is knocking at the door. Like the previous time, the owners have been trying to take advantages in various ways.

Finance minister AHM Mustafa Kamal on Thursday tabled the ‘Bank Company (Amendment) Bill-2023’ in the Jatiya Sangsad (national parliament). The bill was sent to the parliamentary standing committee on finance ministry with a request to submit a report on it within seven days. The standing committee is currently scrutinising the law.

President of bank entrepreneurs’ organisations Bangladesh Association of Banks (BAB), Nazrul Islam Mazumder told Prothom Alo, “We want the tenure to extend more. The issue of tenure to be scrapped (from the law). But we do not know about any decision as yet.”

Earlier, the cabinet cleared the draft of the Bank Company (Amendment) Bill-2023 in March. The act has been amended seven times in the last 32 years. Whenever the act was amended, the directors got the chance to remain in their posts for another nine years. As a result, some of the bank directors and chairmen have been staying in their post for the last 23 years. These banks are in worse condition than the others.

Former professor of economics department at Chittagong University Muinul Islam told Prothom Alo, “Some of the directors have turned the banks into a family property. These directors are highly influential persons. Some of them are in the cabinet too…. That is why the condition of the banks has worsened. Various measures are being taken at different times to sweep this under the carpet, which is very bad signal to the economy.”

The bill that has been tabled in parliament proposed to include three instead of four members of a family as bank directors with the tenure to remain the same, nine years. At the same time, it included definition of willful defaulter and recommended punitive action for them including preventing their foreign trips.

Influential bank directors have been demanding that the tenure of directors be 12 years from 2018. As a result the tenure of those who became directors in 2018 will end in 2030. They are also seeking for the scope to be reappointed as directors for 12 years after a three-year break.

The bank directors also proposed that no other company /sister concern of any group to be dubbed as loan defaulter and be deprived from the benefit of taking bank loan if any one company of the group becomes defaulter. They also demanded any company not to be identified as loan defaulter if the defaulter is not willful or becomes defaulter for any rational reason. Banks could give loans to such companies subject to permission of the Bangladesh Bank. As per the existing law if any company of any group becomes loan defaulter, other companies of that group will also be identified as loan defaulters.

Those directors of the private banks are in favour of vesting the power to remove chairman and director of government banks in the Bangladesh Bank. The central bank can remove the directors of private banks.

During the amendment in 2018, Bangladesh Bank apprehended that a bank could come completely under the influence of one family if the number of directors from the same family be increased to four from two. The central bank also opposed raising the tenure of a bank director to nine years from six years. But all of those objections were overlooked.

BAB vice chairman and chairman to the executive committee of United Commercial Bank Anisuzzaman Chowdhury told Prothom Alo, “We wanted the issue of tenure be slashed. We hear that it is going to be made 12 years. My father established the UCB. We want the bank to be lead by one generation after another. Would the banks run properly if outsiders operate it when we are the owners of the bank? Would any outsider have the same love like us?”

Though the directors claim themselves as owners of the banks, the amount of their investment is just 10 per cent of the total capital of a bank. The banks chiefly operate at the money of depositors but their interests get less priority.

Any person can serve as director of a bank for six years in two terms, that means three years at a time, said the Bank Company Act, 1991. The directors started opposing the act since the very beginning and demanded their directorship be a lifelong matter. Later, the act was amended in 1993 where the provision was slashed. But the amendment was not implemented until 2003. The directors used to interfere in the banks’ activities that time. Later, the act was amended in 2003 keeping a provision that no person could serve as director for a total of six years in two terms.

An ordinance, issued during the time of caretaker government in 2007, said after serving as director for two consecutive terms, a person can be appointed as director once again with a break for a term. Following the implementation of the ordinance the director post of a person would become vacant if he has been serving as director for more than two terms, it said. Many directors lost their posts immediately after the implementation of the ordinance. The ordinance, though, was not passed in the Jatiya Sangsad in 2009.

Consequently, the bank company act returned to the law amended in 2003 and continued until 2013. The act was once again amended in 2013 with a provision that said the tenure of a director to be three years and a person could serve for two terms. The law was again amended in 2018, allowing four members of a family to act as directors for nine consecutive years.

As a result, some bank owners have been taking undue benefits from the banks. This include opening branches at their own building with high rent, selling products of their own companies to the banks, and various other advantages including appointing employees and hiring vehicles. Besides, the irregularities and anonymous loans are also there. This has led to weakened financial condition of many banks. The banks do business at the deposited money of common people and the share of the bank directors is less than 10 per cent. It is the common depositors who would suffer the most if any bank faces any problem.

Loan approval is discussed the most in the board of directors’ meeting in banks that have directors from several families and they are active in the bank affairs. As a result the amount of irregularities is small in those banks. But the condition of the banks which are under control of one family is precarious. The amount of loans in such banks in high too.

For example, National Bank, Social Islami Bank, First Security Islami Bank, Union Bank and Global Islami Bank are under the control of one family each. Some of the banks have also been suffering from liquidity crisis as they faced large scale irregularities. At the same time, among the private banks, National Bank had incurred a huge amount of loss due to the owners’ loan irregularities. Sikder family is in control of the bank. Since the death of Zainul Haque Sikder, his wife Monowara Sikder is the chairman of the bank. But her two sons are the de facto controllers of the bank.

International Finance Investment and Commerce Bank Limited (IFIC) is also under the control of one family. Besides, since the foundation of EXIM Bank in 1999, Nazrul Islam Mazumder has been acting as the chairman of this bank. HBM Iqbal has been working as chairman of Premier Bank and Kazi Akram Uddin Ahmed as the chairman of Standard Bank. At the same time, members of one family are in control of South East Bank, Bank Asia and some other banks by rotation. Once Dhaka Bank was under the control of Mirza Abbas alone but currently he does not apparently have any influence there.

Family of former foreign minister Morshed Khan owns AB Bank, a first generation private bank. Now though the members of that family are no longer in the directorial posts, their representatives have been running the bank. In the same way, though S Alam Group from Chattogram owns the Islami Bank Bangladesh Limited, none of the family members are directly involved with the board of the bank. The family has appointed former university professors, justices, bureaucrats and army officials in the board of directors. The family has also been operating the activities of Bangladesh Commerce Bank with representatives. In the same way the Social Islami Bank Ltd, whose ownership has been changed, is operating. But a member of the family is the chairman of the bank.

In a recent report on the banking sector in the country, the World Bank said the politicians and owners of large business conglomerates have become owners of banks here. Though there are rules that the owners cannot take loans from their own banks but those are only on papers. Bypassing the Bangladesh Bank they took so many loans that that has become dangerous. Nearly 20 per cent loans of private banks are drawn that way, the report added.

Speaking about this to Prothom Alo, Policy Research Institute executive director Ahsan H Mansur said, “The tenure of directorship should be brought down to six years. At the same time, actual independent directors should be appointed more by decreasing the number of entrepreneur directors. Securities Exchange Commission can take this step. Businessmen directors have been giving loans to each other. Those loans are not being recovered. They are providing many unethical benefits to one another. Banks operate at the depositors’ money. As a result, the depositors’ money is falling under risks. Brac Bank proves that a bank can run well even without businessman director. There is a lesson to take from this.”

* The report was originally published in the print edition of Prothom Alo and has been rewritten in English by Shameem Reza