Bangladesh Bank Rules Push Banks to Review Shareholder-Nominated Directors

Bangladesh Bank’s new rules aimed at limiting excessive direct or indirect control of multiple banks by corporate shareholders have prompted several banks to review their board structures and ensure compliance with the regulations.

The central bank’s September 17 circular introduced new limits on corporate shareholdings and established conditions for appointing representative directors nominated by shareholder companies.

The impact was evident at City Bank, whose board on September 29 decided to cancel an Extraordinary General Meeting (EGM) scheduled for October 4. The bank said it needed additional time to assess the implications of the new directives.

The EGM had been planned to seek shareholders’ approval to increase the bank’s authorised capital from Tk2,000 crore to Tk3,000 crore.

City Bank Managing Director Mashrur Arefin said the bank needed to carefully review how the new rules would affect its nominated directors. He said the bank currently has representatives from two Bangladeshi companies and one from the International Finance Corporation (IFC).

The bank may reconsider holding the EGM in December or January after completing its review, he added.

Other banks with shareholder-nominated directors are also assessing their board structures in response to the central bank’s directives.

New Limits on Bank Shareholdings
Under the new rules, a company cannot hold shares in one or more banks with an acquisition value exceeding 50% of its net assets. Companies exceeding the limit will have six months to bring their holdings within the prescribed threshold.

The rules also require a representative director nominated by a shareholder company to be a director or managing director of that company.

In addition, the nominating company must hold at least 2% of the paid-up capital of a public limited company, or 20% of the paid-up capital of another type of company, in its own name and maintain the required holding throughout the nominee director’s tenure.

Bangladesh Bank said the measures are intended to strengthen transparency and stability in bank ownership structures, improve the professionalism of representative directors and protect depositors’ interests.

Bangladesh Bank Executive Director and spokesperson Arif Hossain Khan said the rules were introduced to prevent individual entities from indirectly controlling multiple banks through nominee directors.

He also said foreign institutional investors and non-profit parent organisations would receive appropriate exemptions so that the new framework does not discourage foreign investment. Local commercial companies that fail to meet the requirements, however, could face enforcement measures, including removal of their nominated directors.

According to central bank sources, the representative-director provision will not apply to BRAC Bank, Community Bank, Shimanto Bank and Trust Bank, as most of their shares are held by non-profit organisations or trusts.

BRAC Bank Managing Director Tareq Refat Ullah Khan said the directive is aimed at commercial companies seeking board representation without adequate oversight and would bring greater discipline to bank ownership structures.