No outsiders in board meetings, reminds BB
Some banks now permit outsiders to take part in their board of directors' meetings, a practice that can be viewed as a breach of rules and severe lack of corporate governance in the banking sector.
As confidential issues of clients are discussed in the meetings, the information leak because of the presence of outsiders, which put an adverse impact on the interest of depositors, according to a central bank finding.
Against this backdrop, the Bangladesh Bank yesterday warned banks, asking them not to allow non-members of their respective boards at the meetings under any circumstances.
Along with the outsiders, shareholders and officials of the banks are frequently attending the board meetings going against the banking regulation.
Only the company secretary is allowed to attend the board meeting on a regular basis. Boards, however, are permitted to invite officials concerned, who are needed to dedicatedly present particular issues of the banks, at the board meeting.
But the officials will have to leave the meeting once they have accomplished their assignment.
In 2013, the central bank carried out a sudden investigation at a board meeting of a private bank where it discovered some outsiders taking part in the meeting.
This forced the central bank to issue a notice in December 2013, instructing lenders not to allow any outsiders to board meetings.
Despite that, a chairman of a private bank frequently took part in the board meetings of another lender in 2016, according to a central bank investigation.
The person took a significant amount of loans and grabbed shares of the lender unanimously, jeopardising the financial health of the new bank.
The central bank removed the chairman to bring discipline to the banking sector.
But all efforts of the central bank have almost become futile as outsiders have once again started to join the meetings.
The outsiders usually take part in the board meeting to materialise their ill intent and influence the board to manage loans, a central bank official said.
In most of the cases, the non-members manage their loans from the banks without having adequate collateral and securities and in favour of companies that do not exist. They usually attend the meetings by using political influences.
The financial health of the banking sector has been declining for the years due to the absence of corporate governance.
Last year, the central bank allowed defaulters to regularise delinquent loans in a relaxed manner. This has curbed the upward trend of classified loans for the time being, but the amount will fuel again when the moratorium facility declared by the central bank ends in December.
Non-performing loans went up to Tk 96,116.65 crore in the first half of this year. It was Tk 94,313 crore in December last year.
The central bank should exercise its power to restore good governance in the banking sector, or else lenders will face dire consequence in the days ahead.
The ongoing business slowdown caused by the coronavirus pandemic will widen the woe of banks further.
"Banks should prevent outsiders from attending the board meeting at any cost in order to protect their business," said Md Arfan Ali, managing director of Bank Asia.
He also echoed the central bank notice, saying that clients' interests would be at stake if outsiders are allowed to attend the meetings.