The Bangladesh Association of Banks (BAB) has stated its stance regarding the proposed changes to the Bank Companies Act. In a correspondence sent to the central bank today (September 7), the chairman of the organization, Abdul Hai Sarkar, presented various suggestions. These suggestions include enhancing shareholder engagement, easing limitations on the board of directors, and raising the shareholding cap.

BAB argues that the composition of the board of directors should be defined differently, taking into account the bank’s effectiveness, risk management, and growth trajectories. This approach will benefit high-performing banks while also providing an opportunity for underperforming institutions to improve through rigorous oversight.

Under the current legislation, a director is allowed to serve for a maximum of 12 years and can be reappointed after a break of three years. The proposed amendment suggests extending the term to 6 years; however, BAB has labeled this as “very strict” and has requested an increase to 9 years. They argue that maintaining experienced directors is crucial for fostering investor confidence and providing strategic leadership.

In a similar vein, the current regulation permits a maximum of three family members to serve on the board of directors. The new draft aims to reduce this number to two, but BAB has called for this restriction to be eased or entirely removed. Additionally, the organization has suggested that the definition of ‘family’ should be confined to spouses and dependents, mirroring the practices in India, Pakistan, and Sri Lanka.

Under the present law, an individual or entity can own a maximum of 10% of shares. BAB has requested that this cap be raised to 25% or higher, asserting that such a change would enhance ownership, accountability, and good governance among shareholders.

Conversely, the proposed regulation from the central bank states that even if an individual or entity holds more than 5% of shares, they would only be entitled to exercise a maximum of 5% of voting rights. BAB has vehemently opposed this proposal and has recommended its withdrawal.

Regarding independent directors, the draft amendment suggests reducing the total number of directors to 15, with 50% of them being independent. However, BAB supports retaining the current regulations. They contend that having half of the directors as independent would undermine shareholder control and prioritize compliance over growth.

On the matter of holding shares in multiple banks, the draft prohibits any individual or institution from owning significant shares in more than one bank. BAB argues that this restriction would deter both domestic and foreign investment, advocating for the repeal of this provision.

Directorship in instances of default: At present, a director who has defaulted is barred from reappointment for one year. The suggested amendment aims to shorten this duration to three years. BAB supports a further reduction to six months.

Director appointments: BAB has also advocated for the creation of positions allowing directors from other financial institutions, insurance firms, or regulated companies to serve concurrently as bank directors.