Bangladesh
6 years ago

Amendment to Banking Companies Act

Economists fear family ‘oligopoly’ in banking

‘Four of a family on board to dominate all operations’

A symbolic picture.
A symbolic picture.

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Financial experts said majority stakeholders of banks disfavor the latest legal amendment as they fear inducting four members of a family into bank boards would help establish oligopoly in the banking industry.

They said customers and bankers, the two key stakeholders in banking, are not favouring the amendment to the Banking Companies Act 1991 to make such provisions.

They apprehend that these changes could lead to poor governance in the private commercial banks.

Parliament passed Tuesday a bill providing for a rise in the number of directors on a bank's board from a family to four from present two with their tenure extended to nine years from six.

Khondker Ibrahim Khaled, an expert in banking and former deputy governor of Bangladesh Bank, said the key stakeholders of the banking sector are customers and bankers and they definitely do not want these changes.

"Should we do anything bypassing opinions of such important stakeholders?" he questioned.

The banker cited as an instance the matter of a private commercial bank where he said the CEO is frequently changed "following family members' interference in its management".

He pointed out that there are huge reservations about the changes from the management side but they were not heard and addressed, and "it is amended by a very small number of people".

"I am really aggrieved at the development in the banking industry," Mr Khaled said.

He lamented that the Father of the Nation had fought against the 22 families in the Pakistan era and now "almost same" situation happened in the banking sector.

Dr. Mirza Azizul Islam, an economist and former caretaker-government adviser, questioned its necessity in the industry at all.

"The government and those who wanted the changes should have given an explanation about its necessity for the banking sector."

Dr. Islam expressed the fear that governance in the banking sector would worsen in the days to come.

"We have already observed some sort of deterioration in the governance issue of the private commercial banks and it will deteriorate further."

In the meantime, investors reacted negatively on the country's two stock exchanges due to the amendment to the Banking Companies Act 1991 that made a provision for four of a family to become a bank's board members, and for a longer tenure.

Among the major sectors in stock trade, banking witnessed the highest correction by 1.30 per cent with prices of shares of 25 banks closing lower, out of 30 listed banks. And the National Bank incurred the worst loss with its share shedding 3.04 per cent of its value.

Economist Dr Ahsan H Mansur takes this as a very "sorrowful event" in the banking industry as he said none of its key stakeholders did support the changes brought in bank-management structure and tenure.

Dr Mansur noted that the culture of bad governance persisting in the state-owned banks now would spread fast to the private commercial banks, too.

"The changes had been made at a time when the banking sector is facing a number of challenges including rising non-performing loans (NPLs) and some scams."

"To my mind, this is very sorrowful and absolutely not a right kind of measure," said Dr Mansur, who is executive director of the Policy Research Institute (PRI).

Local think-tank Centre for Policy Dialogue (CPD) in recent observations was critical of the changes made to the bank-management regimes, saying this is "cronyism" in banking.

On the other hand, sponsors of the private commercial banks argue that such changes were necessary as it is they who own the banks.

"We've established the banks and we were in difficulties of the banks so we are very much close to the banks," said Mir Nasir Hossain, a board member of the private commercial bank Eastern Bank Limited.

The businessman said there are many listed companies, and if there are changes in the boards of such listed firms, then the issue does not so attract interest from the critics.

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