The government is moving away from several banking reform proposals introduced during the interim administration to curb the influence of families over private banks in Bangladesh. The revised draft of the Bank Company Act would allow up to three members of the same family to serve as directors of a bank and extend the proposed maximum consecutive tenure from six to nine years. It also appears to soften several measures intended to hold directors accountable for loan defaults.
The proposed changes have raised concerns among economists and banking experts, who warn that relaxing restrictions on family control could undermine efforts to restore discipline in a sector that has suffered from allegations of irregularities, politically connected lending and financial mismanagement.
Under the existing Bank Company Act, up to three members of the same family may serve simultaneously on a bank’s board. During the interim administration, Bangladesh Bank proposed reducing that number to two. It also recommended limiting a director’s consecutive tenure to six years, compared with the current maximum of 12 years. Once a director completes the permitted tenure, they must remain out of the position for three years before becoming eligible for reappointment.
Government reconsiders key reform proposals
A review meeting on the draft amendments to the Bank Company Act was held on 20 September under the chairmanship of Nazma Mobarek, secretary of the Financial Institutions Division. Representatives of Bangladesh Bank, various ministries and government departments, the Bangladesh Association of Banks (BAB), and business organisations attended the meeting.
Speaking to Prothom Alo on 4 October, Mobarek said the authorities had collected opinions from the relevant stakeholders, but no final decision had been made. Bangladesh Bank would conduct a further review and submit the revised draft before it was sent to the Cabinet for approval.
At the meeting, the Financial Institutions Division initially favoured retaining the provision allowing three directors from the same family, rather than reducing the limit to two. It also supported a consecutive tenure of nine years instead of the proposed six.
The BAB opposed the interim administration’s proposals, arguing that reducing the number of directors from a single family could disrupt ownership arrangements and the normal functioning of bank boards. The association maintained that directors should be sufficiently committed to their institutions and warned that shorter tenures could result in a loss of experience and send a negative signal to the banking industry.
Although it opposed the proposed six-year limit, the BAB indicated that reducing the existing 12-year tenure to nine years could be acceptable.
BAB chairman Abdul Hai Sarker told Prothom Alo that the earlier draft contained several inconsistencies and that the association had submitted its recommendations at the time. He said its views had not been fully reflected in the proposals. The organisation had since presented its position to the current government, and he understood that the new draft was taking its recommendations into account.
Asked whether the proposed changes could increase family influence over banks, Sarker expressed confidence that the government would protect the broader interests of the banking sector.
Economists, however, question the association’s arguments. They point out that prolonged tenure and concentrated family ownership have previously enabled a small number of individuals to exercise excessive influence over banks, contributing to governance failures and financial distress.
How directors secured longer tenures
The maximum consecutive tenure for bank directors has been extended twice in recent years. Before 2018, directors could serve continuously for six years. That limit was increased to nine years in 2018 and subsequently extended to 12 years in 2023.
The 2023 amendment triggered controversy in Parliament. On 8 June that year, then finance minister AHM Mustafa Kamal introduced the Bank Company (Amendment) Bill, 2023. The original bill did not propose changing directors’ tenure. However, shortly before its passage, ruling-party MP Ahsanul Islam moved an amendment to allow directors to remain in office for 12 consecutive years. The amendment was approved.
Jatiya Party MPs protested against the change and staged a walkout. Mujibul Haque, a Jatiya Party MP at the time, criticised the role of bank chairmen and directors, arguing that their conduct had contributed to the deterioration of institutions including National Bank and EXIM Bank.
The extension was widely criticised as a concession to bank owners with close ties to the then Awami League government. Former BAB president and EXIM Bank chairman Nazrul Islam Mazumder was among the figures associated with the push for longer tenures. He is currently in prison. Former finance minister AHM Mustafa Kamal has left the country, while former Bangladesh Bank governors Fazle Kabir and Abdur Rouf Talukder have not been appearing publicly, according to the original report.
The wider debate reflects longstanding concerns about the relationship between bank ownership, political influence and regulatory oversight. Critics argue that allowing directors to remain in office for extended periods can weaken independent scrutiny, particularly when several board members belong to the same family or business group.
Family-controlled banks and the cost to depositors
Several major business groups, including S Alam Group, Beximco, Premier Group and Sikder Group, have faced allegations of irregularities and corruption involving banks and financial institutions during the Awami League government’s tenure. The allegations include exercising control over financial institutions and using family connections to consolidate influence within bank boards.
According to allegations cited in the report, individuals associated with these groups placed not only themselves but also their spouses, children, sons-in-law and other close relatives on bank boards.
Such arrangements can create conflicts of interest, particularly when directors have links to businesses seeking loans from the institutions they oversee. Effective banking governance requires independent scrutiny of lending decisions, appropriate risk management and safeguards against the use of depositors’ money for the benefit of connected individuals or companies.
Some banks associated with concentrated family control are now in serious financial difficulty, leaving depositors struggling to recover their money. In response, the government is establishing a consolidated institution, Sammilito Islami Bank, by merging five banks. The government has provided Tk 20,000 crore in capital to the new institution from the public treasury.
The use of public funds to support a troubled banking institution has intensified questions about accountability. When governance failures lead to major financial losses, the consequences can extend beyond shareholders to depositors, taxpayers and the wider economy.
Against this background, the interim administration had prepared a draft banking reform framework jointly through the Financial Institutions Division and Bangladesh Bank. However, it left office without issuing the proposed reforms as an ordinance.
Prime Minister’s Economic and Planning Adviser Rashed Al Mahmud Titumir told Prothom Alo on 4 October that he believed the amended law would prioritise the protection of depositors and sound governance across the banking sector.
Disagreement over the definition of family
Another contentious issue is how the law defines a director’s family. Bangladesh Bank, under former governor Ahsan H Mansur, proposed broadening the definition to prevent relatives from using different family relationships to maintain influence over the same bank’s board.
Under the existing law, the definition covers a person’s spouse, parents, sons, daughters, brothers, sisters and dependants. The interim administration’s proposal sought to include additional relatives, such as sisters-in-law, brothers-in-law, parents-in-law and other specified in-laws, as well as dependants.
The objective was to close potential loopholes through which members of an extended family could retain collective influence even if the number of directors from a single family were restricted.
The BAB favours a narrower definition, limited primarily to spouses and dependants. In support of its position, it cited the approaches adopted in India, Pakistan and Sri Lanka, where the legal definitions of family differ.
India’s framework includes spouses and, in relevant circumstances, a Hindu undivided family. Pakistan’s definition covers spouses, dependent lineal descendants and dependent siblings. Sri Lanka’s approach, as cited by the association, focuses on spouses and dependent children.
The question of family representation on bank boards is not new. A banking reform committee led by economist Wahiduddin Mahmud recommended in its 1996 report that multiple members of the same family should not be permitted to serve on a bank’s board.
Former Bangladesh Bank governor Ahsan H Mansur said the earlier draft had been developed by drawing on international practices, with an emphasis on governance, reducing family control, increasing the number of independent directors and limiting directors’ tenure.
He expressed disappointment that the government appeared to be moving away from those principles. Mansur argued that some directors tended to regard an institution as their own or as a family bank, rather than a financial institution with responsibilities to depositors and the wider economy. He said the government had a responsibility to use legislation to discourage such attitudes.
Proposed concessions for defaulting directors
The draft also revisits the rules governing directors whose loans become classified as defaulted.
Under the existing provisions, a director whose own loan, or a loan guaranteed by them, becomes overdue and classified as defaulted is given two months to regularise it. Failure to do so can result in the loss of their directorship. The law also provides for the sale of their shares to recover the outstanding debt.
Bangladesh Bank’s earlier draft proposed stricter requirements. Under those provisions, a director could also lose their position if a company in which they had a relevant interest defaulted on its loans.
The revised draft is set to drop that proposal. It would also reduce the period a former director must wait before becoming eligible for reappointment after losing the position from one year to six months.
Critics argue that the financial conduct of companies linked to bank directors deserves close scrutiny because of the potential for conflicts of interest. If a director can remain in office despite defaults by a business in which they have a significant interest, questions may arise over the effectiveness of the bank’s accountability framework.
The final impact will depend on the precise wording of the legislation and how the relevant provisions are enforced.
Changes to Bangladesh Bank’s intervention powers
Section 47 of the existing Bank Company Act empowers Bangladesh Bank to dissolve an entire board if there is evidence that a bank is being operated in a manner contrary to the interests of depositors or the institution itself. The earlier reform proposal also provided for the appointment of an administrator or another suitable person to take charge after a board was dissolved.
Under the revised approach, the regulator may be allowed to appoint an administrator while leaving the existing board in place. This would enable Bangladesh Bank to intervene directly in a bank’s operations without necessarily removing every board member.
Such a mechanism could allow the regulator to maintain operational continuity while addressing problems. However, questions remain over how effectively an administrator could tackle misconduct if the board responsible for overseeing the institution remained in place.
The proposed amendments could also strengthen Bangladesh Bank’s powers to restrict financial support to affiliated businesses. Existing provisions allow the regulator to stop a bank from accepting new deposits if its operations run counter to depositors’ interests. It can also prohibit lending in such circumstances.
The revised draft may extend these powers to cover new loans, investments and capital injections by a bank into its subsidiaries or affiliated entities. The aim would be to prevent a troubled bank from transferring additional resources to related businesses while its own financial position remained under pressure.
The draft also proposes restrictions on changes involving directors of debtor companies. Without the bank’s approval, such directors would not be permitted to resign, nor could they be dismissed, removed or released from their positions. They would also be prohibited from transferring or selling shares without the necessary approval.
These provisions are intended to prevent individuals connected with indebted companies from evading scrutiny or changing their positions in ways that could complicate loan recovery. Their practical effectiveness, however, would depend on the scope of the regulator’s authority and the safeguards built into the final law.
Independent directors unlikely to make up half the board
The interim administration’s draft proposed a 15-member board for each bank, with independent directors accounting for 50 per cent of its membership. Under the existing framework described in the report, bank boards can have up to 20 members, with provision for three independent directors.
The earlier proposal also sought to prevent cabinet members, MPs and local government representatives from serving on bank boards. Such restrictions were intended to reduce political influence and strengthen the independence of banking decisions.
The BAB opposed the proposal to make independent directors half of the board. It argued that two or three independent directors would be sufficient and warned that a larger independent representation could reduce shareholders’ control over the institution. The association also suggested that excessive emphasis on regulatory compliance could come at the expense of profitability and growth.
Supporters of stronger independent oversight counter that independent directors can play an important role in scrutinising lending decisions, identifying conflicts of interest and challenging management when necessary. Their presence can be particularly important when major shareholders have extensive business interests connected to the bank.
However, independence depends on more than numbers. The process of appointing directors, their professional competence, freedom from pressure and ability to question influential shareholders all affect whether they can provide meaningful oversight.
After considering the views of different stakeholders, the Financial Institutions Division is favouring a maximum of three independent directors, according to sources cited in the report. If adopted, this would represent a significant departure from the interim administration’s proposed board structure.
Economists warn against repeating past mistakes
Mustafa K Mujeri, a former chief economist of Bangladesh Bank, said a substantial share of the irregularities, corruption and alleged looting in the banking sector had involved collusion among board members.
He described the proposed six-year consecutive tenure limit and the restriction of no more than two directors from the same family as important measures for improving governance. Relaxing those provisions, he warned, could create the risk of another major crisis in the banking industry.
Mujeri also stressed that the draft had not yet been finalised. He expressed hope that the government would reconsider the proposals in the interests of the sector’s long-term health before the matter reached the Cabinet for a decision.
The debate over the Bank Company Act comes at a critical time for Bangladesh’s financial sector. The authorities are attempting to address distressed banks, restore depositor confidence and strengthen regulatory supervision after years of allegations involving concentrated ownership and weak accountability.
The revised legislation could determine how effectively the country limits conflicts of interest, holds directors responsible for financial misconduct and protects depositors from the consequences of poor governance.
The government’s final decision will therefore be significant not only for bank owners and directors, but also for ordinary customers whose savings depend on the stability and integrity of the banking system. Stronger rules alone cannot guarantee good governance; consistent enforcement, independent supervision and meaningful accountability will also be essential to rebuilding confidence in Bangladesh’s banks.
