BB now sets criteria for NBFIs’ independent directors
The Bangladesh Bank has issued its first-ever guideline for the appointment of independent directors at non-bank financial institutions (NBFIs) in order to protect the interest of depositors and general shareholders.
Prior to the guideline, publicly listed NBFIs had to appoint independent directors as per the corporate governance rule of the Bangladesh Securities and Exchange Commission, said Kanti Kumar Saha, CEO of Alliance Finance PLC.
"Now, all NBFIs, both listed and non-listed, will have to appoint independent directors. This will be good for the sector as qualified people will be hired," said Saha, also the vice-chairman of the Bangladesh Leasing and Finance Companies Association.
The latest BB move comes as most of the NBFIs are struggling to stay afloat owing to loan irregularities and a liquidity crisis, driven by weak corporate governance. Even, half a dozen companies failed to repay the depositors' money in recent times.
The sector's bad loans stood at Tk 21,658 crore in September, central bank data showed. The bad loan ratio is more than 80 percent in seven companies. There are 35 NBFIs in the country.
In a circular on the appointment of independent directors yesterday, the BB said an NBFI can appoint a maximum of two independent directors to its 15-member board.
It also fixed criteria on work experience, minimum and maximum age and other qualifications that NBFIs would have to comply with at the time of hiring independent directors.
The minimum age for an independent director must be 45 years and the maximum age has been set at 75 years. They have to have a graduation degree in economics, banking, finance, business administration, law and accounting, said the central bank.
Last month, the banking watchdog issued a guideline for hiring independent directors at banks.
Yesterday's guideline for the NBFI has been issued in line with the Finance Company Act 2023, which was passed last year.
If an individual has any association with a finance company, he or she can't be nominated as an independent director for the NBFI, the guideline said.
Non-banks can't appoint persons whose family members hold shares or hold remunerative posts in those NBFIs. Persons convicted in criminal cases or involved in forgery, financial crime or any other unlawful activities will not qualify as well.
The banking regulator also barred loan defaulters, tax defaulters and bankrupts from becoming independent directors. It has fixed the honorarium for them and travel and accommodation expenses to curb excess spending.
In the notification, the BB highlighted the roles, responsibilities and accountabilities of the directors.
The independent directors will have to inform the BB if their opinions are not given due importance and in the case of any violation of rules, according to the BB circular.
Comments