Amendment mistimed: analysts

The proposed amendment to the banking company act will shrink the size of the board at a time when banks need bigger boards with experienced members for sound risk management, speakers said yesterday.

Earlier in May, the cabinet approved a proposal to amend the Banking Companies Act such that four directors from a single family are allowed in a bank's board instead of existing two.

The amendment will strengthen the grip of a family in a bank's board -- a highly undesirable trait.

"A large board is needed to establish good governance but the proposed new amendment will squeeze the scope," said Faruq M Ahmed, additional managing director of Trust Bank, while addressing a conference.

Ahmed's comments came at the Annual Banking Conference, organised yesterday by the Bangladesh Institute of Bank Management at its auditorium in the capital. The two-day conference was inaugurated by Bangladesh Bank Governor Fazle Kabir.

BIBM has been organising the event every year since 2012 with the view to bringing together experts, academicians and researchers from all over the world to exchange and share knowledge, experience and research outputs on banking and related issues.

"Such gathering will generate innovative ideas and policies to address the current issues of the banking industry," Kabir said while delivering his speech as the chief guest.

Private banks should look to effectively employ audit committees and pack in bigger boards with experienced members to guarantee sound risk management, said GM Wali Ullah, lecturer of the Independent University, Bangladesh's business school, referring to an empirical study. 

Speakers at the conference also said that banks are not reporting the actual figure of non-performing loans in their financial statement.

"If the non-performing loans are actually calculated, the figure will go up further," said Ahmed.

As of September, the total default loans in the banking sector stood at Tk 80,307 crore, which was 10.67 percent of the total outstanding loans, according to data from the central bank.

Currently, default loans amount to 12 percent of Bangladesh's GDP, in contrast to 8 percent in India.

Toufic Ahmad Choudhury, director general of BIBM, presented a keynote paper titled "A Review of the Banking Activities – 2016" at the inaugural session.

The BIBM organised the event in association with the United Nations Capital Development Fund, Q-Cash, Enroute and aamra. The media partners of the event are Bonik Barta, Dhaka Tribune and Channel - 24.