Bangladesh Bank has introduced a uniform Key Performance Indicator (KPI) framework to evaluate the performance and responsibilities of managing directors (MDs) and chief executive officers (CEOs) of all scheduled banks.

The central bank issued the directive on Sunday, instructing the chairmen of the boards of all scheduled banks to strictly follow the new framework.

Under the new policy, appointment and reappointment contracts for bank MDs and CEOs must include specific targets for reducing default loans, recovering written-off loans and improving the banks’ financial position.

The performance evaluation will be based on five major weighted indicators carrying a total of 100 marks. Financial strength will be assessed using indicators including the Capital to Risk-Weighted Assets Ratio (CRAR), Liquidity Coverage Ratio (LCR), Net Stable Funding Ratio (NSFR) and Advance-Deposit Ratio (ADR).

The framework will also assess progress in reducing the default loan ratio, lowering excessive concentration of lending among the top 20 borrowers and recovering defaulted and written-off loans. Profitability and operational efficiency will be measured through indicators such as Return on Assets (ROA) and Return on Equity (ROE). Governance and internal control systems will carry a 25% weight.

The evaluation will also consider findings from Bangladesh Bank inspections, compliance with anti-money laundering laws, IT security risks, expansion of digital banking services, lending to the CMSME sector, agricultural and green finance, and the quality of customer services.

An MD or CEO will receive proportional marks for achieving at least 50% of a KPI target. No marks will be awarded for achieving less than 50%. Moreover, failure to achieve at least 50% of the targets in six key KPIs will result in proportional deductions from the overall score.

Based on the total score, MDs will be classified into three performance categories. A score of 75 or above will be considered “above average,” 65 to below 75 “average,” and below 65 “below average.”

Bank boards will set targets on a rolling basis every six months for the next three years or until the end of the incumbent MD’s tenure, using the previous quarter’s performance as the baseline.

The approved KPI framework and evaluation report must be submitted to Bangladesh Bank’s BRPD-2 department within seven working days of approval by the bank’s board. The central bank will then review the reports and determine necessary instructions and follow-up actions regarding the respective MDs.