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In May last year, the government committed to the World Bank (WB) to appointing independent directors to state-owned banks so that they would make up at least one-third of the total board members of such banks.
The move was aimed at strengthening corporate governance at such banks.
Nearly eight months have passed now, but there is only one independent director in the 13 state-owned banks. Of the banks, six are commercial banks, three are specialised banks, and four are non-scheduled banks.
Rupali Bank is the lone state-owned bank having an independent director on its board, according to officials of the Financial Institutions Division (FID) under the Ministry of Finance.
The government made the commitment last year to raise the number of independent directors as part of securing $500 million in budget support under the World Bank's Recovery and Resilience Development Policy Credit-2 programme in order to replenish the dwindling foreign currency reserves.
"To further strengthen corporate governance at state-run banks and align with good international practices, we are committed to increasing the minimum share of independent directors on the banks' boards to at least one-third of the total number of board members over the next 12 months…" the then finance minister Abul Hassan Mahmood Ali wrote in a letter to Ajay Banga, the World Bank president.
At the same time, the minister also committed to implementing the requirements introduced by the central bank and the FID in their circulars within that period.
However, things have not advanced as per the commitments.
Asked, a senior FID official told The Financial Express the government could not fulfil the commitment because of the political changeover.
"The interim government is mainly busy with reform initiatives and highly engaged in strengthening the country's financial health," he said.
Appointing independent directors thus had not got importance so far, he also said.
Officials concerned said the Finance Division recently wrote to the FID to take measures to fulfil the commitment as soon as possible.
The former finance minister also informed the World Bank that to advance corporate governance at all banks, the central bank in February 2024 had issued three circulars, setting out the strengthened criteria for appointing board members, managing directors, and chief executive officers, the requirements of their education, professorial experience, minimum age, and total service term.
The central bank also clarified the fit and proper criteria for independent directors.
The circulars excluded candidates convicted of criminal offences, tax defaulters, and wilful bank loan defaulters from becoming directors.
"We recognise the importance of further improving corporate governance at state-owned banks," Ali noted.
He further wrote that in addition to the central bank's corporate governance requirements, the FID in April 2024 issued revisions to its December 2022 circular with additional requirements of corporate governance at state-owned banks.
These included provisions for appointing women directors to boards and establishing selection committees to recruit board members.
"We are committed to continuing financial sector reforms as part of a broader effort to strengthen the banking sector's stability. We will continue efforts to reduce the stock and flow of non-performing loans," the former minister noted.
He also said the government's priorities include enhancing credit market infrastructure and creating a secured transaction registry, enhancing the credit reporting system's operations, and facilitating the private asset management companies' development.
"We will bring the definition and recognition of non-performing loans in line with the international standards, as well as enhance reporting and disclosure standards in line with IFRS 9," he further added.