Family’s grip to loosen, willful defaulters to face music

A maximum of three persons from a single family would be able to become directors of a commercial bank from the existing four, according to the Bank Company (Amendment) Bill 2023. 

The draft act has also defined habitual defaulters and set punitive measures against delinquent borrowers, the first such measure in the country's history.

Finance Minister AHM Mustafa Kamal placed the bill in parliament yesterday. It was sent to the parliamentary standing committee on the finance ministry for further scrutiny.

The committee was asked to submit its report before the House within seven working days.

The reduction in the number of directors from a single family has been a long demand from analysts and experts in order to strengthen corporate governance and bring back stability in the banking sector where default loans have gone through the roof owing to poor enforcement of laws.

There are allegations that a few families are controlling a number of banks in the country.

The draft act, which has been in the works since 2019, has been a longstanding demand of the multilateral lenders such as the World Bank and the International Monetary Fund.

The IMF has stipulated submitting the draft law before the parliament by September as a part of its $4.7 billion loan.

An official, who was part of a committee involved in drawing up the draft, said that the committee had initially proposed allowing two persons from a family to sit on a bank board. But the finance ministry set the number at three.

As per the bill, directors of a bank will not be allowed to become members of the board of another bank, non-bank financial institution, insurance company, and their subsidiaries and associated companies.

It also proposed some strict measures applicable to directors, making it mandatory for them to put up collateral before borrowing from their own banks.

According to the draft law, an individual will be considered a willful defaulter if he or she does not repay a loan, secured by them or their companies, to banks despite being able to pay it back.

The draft act said, "If anyone takes loans from a bank or financial institution in their name or in the name of family members providing false information, the individuals will be considered a willful defaulter."

If borrowers divert funds to areas not mentioned in the credit proposal, they will also be treated as habitual defaulters as well.

Banks in Bangladesh witnessed an accumulation of default loans by Tk 10,964 crore in the first three months of 2023, which highlighted the worsening financial health of the banking sector.

Non-performing loans stood at Tk 131,621 crore as of March 31, up 9 per cent from three months ago and 16 per cent from a year earlier, data from the BB showed.

The latest NPL figure is the second-highest in the banking sector's history and comes within a whisker of the highest-ever NPL of Tk 134,396 crore reported in September of 2022.

As per the provisions of the draft law, banks must send the list of willful loan defaulters to the BB. The central bank can ban them from travelling abroad.

Willful defaulters will also be barred from obtaining trade licences, listing their companies on the stock exchanges and securing registration from the Registrar of Joint Stock Company and Firms to open a new company.

A willful defaulter will not be eligible to be a director of a bank or NBFI within five years after their exclusion from the list of willful loan defaulters.

If a director of a bank becomes a willful loan defaulter, the BB can remove him and declare the post vacant.

Banks will have to file lawsuits against habitual defaulters within two months after they are categorised as willful defaulters.

If a bank fails to send the list of habitual defaulters to the central bank on time or does not file a lawsuit, it could be fined Tk 50 lakh to Tk 1 crore. The bank will count fines of an additional Tk 1 lakh for the delay for each day.

The central bank can remove the chairmen and managing directors of banks if they become involved in harmful activities that go against the interest of depositors.

If a bank faces financial losses due to the harmful activities committed by directors, the lender has been empowered to take legal action to recover the money.

The draft law has banned all companies, including cooperatives, from using the word "Bank" in their name if they are not licensed to run banking operations.

Directors of such companies will face a fine of up to Tk 50 lakh and imprisonment for a maximum of seven years. They will also have to count an additional fine of Tk 1 lakh for each day if the breach of laws continues.

Speaking in the parliament, opposition Jatiya Party lawmaker Fakhrul Imam objected to the bill.

He alleged that the bill was introduced in accordance with the conditions of the IMF.

However, the finance minister said the amendment has not been brought in on the advice of anyone. Some amendments are being made to establish a modern banking system.

Later, Imam's objection was rejected in a voice vote.