The government is considering relaxing several proposed reforms designed to curb family dominance in Bangladesh’s private banking sector, raising concerns among economists and banking experts about the future of corporate governance. Under the latest draft of amendments to the Bank Company Act, as many as three members of the same family could continue serving on a bank’s board, while directors could be allowed to remain in office for nine consecutive years instead of the six years proposed under reforms initiated during the interim administration. Proposed stricter measures against directors linked to loan defaults are also being reconsidered.
The changes could weaken efforts to prevent a small number of families from exercising disproportionate influence over banks. Bangladesh’s banking sector has faced persistent concerns over weak oversight, questionable lending practices and the concentration of decision-making power among influential business groups. The proposed amendments are therefore being closely watched by those who believe stronger safeguards are necessary to protect depositors and restore confidence in the financial system.
Proposed changes to directors’ tenure
Under the existing Bank Company Act, up to three members of the same family may serve simultaneously on a bank’s board. A director can remain in office continuously for up to 12 years, after which they must take a three-year break before becoming eligible for another term.
During the interim administration, Bangladesh Bank proposed reducing the maximum number of directors from the same family to two. It also recommended limiting a director’s continuous tenure to six years, alongside broader restrictions intended to strengthen accountability and reduce family control over banking institutions.
However, a review meeting on the draft amendments held on 20 September, chaired by Nazma Mobarek, secretary of the Financial Institutions Division, indicated that some of these proposals could be relaxed. Representatives of Bangladesh Bank, various ministries and government departments, the Bangladesh Association of Banks (BAB) and business organisations attended the meeting.
The Financial Institutions Division initially favoured allowing three members of the same family to sit on a bank’s board and extending the proposed continuous tenure from six years to nine.
On 4 October, Nazma Mobarek told Prothom Alo that opinions had been collected from the relevant stakeholders, but no final decision had been made. Bangladesh Bank would review the draft further before submitting it for consideration by the Cabinet.
The proposed changes remain under review, but the initial direction has raised questions about whether the government intends to retain the central elements of the earlier reform programme.
Bank owners oppose tighter restrictions
The BAB opposed several of the interim administration’s proposals, arguing that reducing the number of directors from a single family could disrupt a bank’s ownership structure and the normal functioning of its board.
The association maintains that banks need directors who are committed to their institutions and possess sufficient experience to oversee complex financial operations. It argues that excessively short tenures could result in a loss of experience and send a negative signal to the banking industry. If the existing 12-year limit is to be reduced, the BAB believes nine years would be more appropriate.
BAB chairman Abdul Hai Sarker told Prothom Alo on Wednesday night that the earlier draft contained several inconsistencies. Although the association had submitted its views, he said, they had not been fully reflected in the proposals. The BAB had subsequently presented its position to the current government, and he understood that some of its recommendations were being incorporated into the revised draft.
Asked whether the changes could create greater scope for family influence in banking, Sarker expressed confidence that the government would safeguard the broader interests of the sector.
Banking analysts, however, question the association’s argument. They point to the sector’s experience of prolonged directorships, during which family influence allegedly became entrenched in some institutions and contributed to governance failures. In their view, experience alone cannot justify extended tenure when independent oversight and accountability are also essential.
How directors gained the right to serve for 12 years
The maximum period for which a director can serve continuously has been extended in stages. Before 2018, the limit was six years. It was increased to nine years in 2018 and then extended to 12 years in 2023.
The 2023 amendment provoked controversy in Parliament. On 8 June that year, then finance minister AHM Mustafa Kamal introduced the Bank Company (Amendment) Bill, 2023. The original bill did not propose changing directors’ tenure. Shortly before the bill was passed, ruling-party MP Ahsanul Islam introduced an amendment to allow directors to remain in office for 12 consecutive years. The amendment was approved.
Several MPs from the opposition Jatiya Party protested by walking out of Parliament. Mujibul Haque, then a Jatiya Party MP, criticised the leadership of National Bank and Exim Bank, arguing that chairmen and directors had contributed to the institutions’ decline. His remarks reflected wider concerns about the role of bank boards in alleged financial irregularities and the misuse of institutional resources.
There have been allegations that influential bank owners close to the former Awami League government sought the extension of directors’ tenure. Nazrul Islam Mazumder, former BAB president and chairman of Exim Bank, was associated with the controversy surrounding the sector’s leadership. He is currently in prison. Former finance minister AHM Mustafa Kamal has gone abroad, while former Bangladesh Bank governors Fazle Kabir and Abdur Rouf Talukder have not appeared publicly, according to the report.
Family dominance and the banking crisis
During the former Awami League government, several business groups, including S Alam Group, Beximco, Premier Group and Sikder Group, faced allegations of exercising control over banks and financial institutions and engaging in irregularities and corruption. It was also alleged that individuals associated with these groups placed their spouses, children, sons-in-law and other close relatives on bank boards, strengthening family influence over institutional decisions.
Concentrated family control can create conflicts of interest when directors’ personal or commercial interests overlap with decisions involving lending, investment and risk management. Where independent scrutiny is weak, the interests of depositors and other stakeholders may be subordinated to those of influential owners.
Several banks associated with concentrated ownership have since faced severe financial difficulties, leaving depositors struggling to withdraw their money. The government is establishing a new institution, Sammilito Islami Bank, by merging five distressed banks. The merged bank has received Tk 20,000 crore in capital from the public treasury, placing the burden of stabilisation partly on taxpayers.
The scale of the intervention has intensified calls for stronger governance and more effective supervision. The interim administration had therefore sought to amend banking legislation through a joint effort involving the Financial Institutions Division and Bangladesh Bank. However, it left office without issuing the proposed reforms as an ordinance.
Rashed Al Mahmud Titumir, the Prime Minister’s adviser on economic and planning affairs, told Prothom Alo on 4 October that the amended law should prioritise the protection of depositors and the maintenance of sound governance throughout the banking sector.
Disagreement over the definition of family
One of Bangladesh Bank’s proposals was to broaden the legal definition of family so that relatives could not bypass restrictions by relying on relationships that fall outside the existing definition.
Under the current law, a person’s family includes their spouse, parents, sons, daughters, brothers, sisters and dependants. The interim administration proposed adding relatives such as sisters-in-law, brothers-in-law, parents-in-law and other relatives connected through marriage. The aim was to prevent family members from retaining collective influence over a bank’s board by using different formal relationships.
The BAB wants the definition to be limited to spouses and dependants. In support of its position, the association cited examples from other South Asian countries. According to the comparisons presented by the BAB, India’s definition refers to a spouse or a Hindu undivided family; Pakistan’s includes a spouse, dependent lineal descendants and dependent siblings; and Sri Lanka’s refers to a spouse or dependent children.
Yet the issue has a much longer history in Bangladesh. A banking reform committee led by economist Wahiduddin Mahmud recommended in 1996 that multiple members of the same family should not be permitted to serve on a bank’s board.
Former Bangladesh Bank governor Ahsan H Mansur said the earlier draft had drawn on international practices to reduce family control, increase the number of independent directors and shorten directors’ tenure in the interests of stronger governance. He expressed disappointment that the government appeared to be moving away from those principles.
Mansur also criticised the tendency among some directors to regard an institution as “my bank” or “our family’s bank”. He argued that the government had a responsibility to use legislation to challenge such attitudes and ensure that banks were run in the interests of their institutions and stakeholders, rather than treated as extensions of private family businesses.
Proposed concessions for directors linked to loan defaults
The current rules give a director two months to regularise a loan if their own borrowing, or a loan they have guaranteed, becomes classified as a default. Failure to do so can result in the director losing their position. The law also provides for the sale of the director’s shares to recover the outstanding debt.
Bangladesh Bank’s earlier draft proposed extending these restrictions. Under that proposal, a director could also lose their position if a company in which they had a financial interest defaulted on its loans. This would have widened the scope of accountability beyond loans taken out directly by the director or those personally guaranteed by them.
The revised draft is set to drop that provision. It would also reduce the period a former director must wait before becoming eligible for another directorship from one year to six months.
Critics argue that these changes could weaken the safeguards intended to prevent directors from avoiding accountability through their commercial interests in other companies. The effectiveness of any such provision depends on clear rules, reliable disclosure of related-party interests and consistent enforcement by the regulator.
Changes to Bangladesh Bank’s supervisory powers
Section 47 of the Bank Company Act currently empowers Bangladesh Bank to dissolve an entire board if it finds evidence that a bank is operating against the interests of the institution or its depositors. After dissolving the board, the central bank can appoint an administrator or another suitable person to manage the bank.
The revised draft may allow Bangladesh Bank to appoint an administrator while leaving the existing board in place. This would give the regulator another means of intervening in a bank’s management without immediately removing all directors.
Such a power could help the central bank respond to problems in a more targeted way. However, questions remain over whether effective corrective action would be possible if the board members whose decisions contributed to a bank’s difficulties remained in office.
Existing provisions also allow Bangladesh Bank to prevent a bank operating against depositors’ interests from accepting new deposits. The regulator can also restrict its lending activities. A further provision under consideration would empower the central bank to stop a bank from providing new loans, investments or capital to its subsidiaries.
The draft also proposes restrictions on directors of companies indebted to a bank. Without the bank’s approval, such directors would not be permitted to resign or be dismissed, removed or released from their positions. They would also be prohibited from transferring or selling their shares without authorisation.
These provisions are intended to limit the scope for individuals associated with indebted companies to evade obligations or dispose of their interests without the lender’s consent.
Independent directors may fall short of 50 per cent
The interim administration’s draft proposed limiting bank boards to 15 members, with independent directors accounting for half of the total. It also sought to prevent Cabinet members, MPs and local government representatives from serving on bank boards.
Under the existing arrangements described in the report, bank boards can have up to 20 members, with provision for three independent directors.
The BAB has opposed the proposal to make half the board independent, arguing that two or three independent directors would be sufficient. It maintains that a larger proportion of independent directors would reduce shareholders’ control and place greater emphasis on compliance than on profitability and growth.
After considering views from different stakeholders, the Financial Institutions Division is understood to favour a maximum of three independent directors.
The disagreement highlights a central question in banking reform: how to balance the legitimate interests of shareholders with the need for independent oversight. Independent directors are expected to scrutinise management decisions and help identify conflicts of interest, but their effectiveness depends on their actual independence, access to information and ability to challenge the controlling shareholders.
Economists warn of another banking crisis
Mustafa K Mujeri, former chief economist of Bangladesh Bank, said that a substantial portion of past irregularities, corruption and alleged looting in the banking sector had involved collusion among board members.
He described the proposals to reduce directors’ continuous tenure to six years and limit each family to two board members as important measures. Relaxing those restrictions, he warned, could increase the risk of another major crisis in the sector.
Mujeri also stressed that the draft had not yet been finalised. He suggested that the finance minister, Amir Khosru Mahmud Chowdhury, might not yet have reviewed every aspect of the proposals in full, adding that the matter would be considered by the Cabinet. He expressed hope that the government would reconsider the provisions in the interests of the banking sector’s long-term health.
The final form of the amended Bank Company Act remains undecided. Its provisions on family representation, directors’ tenure, accountability for loan defaults and the role of independent directors will help determine whether the reforms strengthen oversight or leave existing concentrations of power largely intact.
For a banking sector already grappling with distressed institutions and pressure on depositors, the challenge is to create a legal framework that supports competent management without allowing prolonged family control to undermine accountability. The government’s next steps will show how it intends to balance shareholders’ interests with the wider responsibility to protect depositors and maintain confidence in the financial system.